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It is 9am in Krasnoyarsk, western Siberia. Oleg Deripaska, Russia's second richest man, has headed from his Gulfstream private jet to the boardroom at Kraz, the world's second largest aluminium smelter and the heart of his UC Rusal
The two men are standing in front of a flow-chart and speaking about Kraz's gemba, the Japanese word for factory floor. Mr Deripaska has become an enthusiastic convert to the Toyota "way", as taught by Mr Youmans. "Don't call me a guru, I'm a coach," the latter says.
Two Russian plant directors watch their bosses circumspectly and await instructions, their heads bowed, as Mr Youmans expands on his theory: "We aim to have an impact like the expanding ripple of a pebble dropped in the water," he says.
The touchy-feely scene is a world away from a decade ago when Kraz, a symbol of Soviet industrial might, was the grim frontline in a bloody turf war for control of nearly 5 per cent of world aluminium supplies. Management frequently changed hands in armed struggles and three executives linked to the plant were slain. Mr Deripaska is, metaphorically at least, the last man standing from this conflict - and has much to show for his efforts.
Rusal is the world's biggest aluminium producer - though it will be overtaken by Rio Tinto and Alcan once the merger announced yesterday between the two rivals is concluded. At 39, Mr Deripaska is worth more than $23bn (£11bn, €17bn), along the way becoming the grandson-in-law of Boris Yeltsin, Russia's late president. He says he has been fortunate in many respects - some of his biggest competitors exited on their own.
There was, for example, Anatoly Bykov, the Krasnoyarsk aluminium kingpin who sold out to him after being jailed on what he said were trumped-up charges. Then there was Anton Malevsky, a reputed head of an organised crime group that haunted the industry: he perished on holiday in South Africa when his parachute failed to open. "He liked living on the edge," Mr Deripaska says.
For years, being associated with the Russian aluminium industry was a public relations nightmare. But now Mr Deripaska is repositioning himself, expanding his holdings out of aluminium to plough billions of dollars in investments into timber, construction, aircraft and cars. He is also preparing to take Rusal, which this year took over the rival Sual and the alumina assets of the Swiss-based Glencore, to a full London Stock Exchange listing as soon as November, in an initial public offer expected to raise as much as $9bn.
But despite Mr Deripaska's success at putting the past behind him, one former associate refuses to be quiet. As the IPO nears, Michael Cherney, a controversial founding father of Russia's post-Soviet aluminium industry, says he is preparing to refile a claim for 20 per cent of Rusal, the holding he says he is owed from what he describes as a 50-50 partnership with Mr Deripaska for most of the 1990s.
A document filed as part of the case in the London High Courtis in circulation that sets outMr Cherney's claim to the stake. Mr Cherney says his lawyers are preparing to submit thousands more documents proving their partnership. As the legal battle brews, the case is throwing the spotlight on Mr Deripaska's rise to the top of an industry once wracked with crime. The outcome and whether it has an impact on the IPO will do much to determine investor attitudes toward Russia's progress and whether a company with such a controversial past can win a London listing. It could also determine the future of Mr Deripaska's holdings as the Kremlin continues its drive to take back control of strategic sectors of the economy, from oil to aerospace to automobiles, with many observers predicting the metals industry could be next.
Making matters worse, the US State department recently confirmed it was denying entry to Mr Deripaska, after granting him a visa in 2005-06. It will not disclose the reason for its decision.
Mr Deripaska denies he ever worked in partnership with Mr Cherney. Mr Cherney says he is merely seeking to enforce his rights. While the two disagree over their roles, their tale tells much of how Russian business has evolved from the early 1990s when, according to one insider, businessmen queued in hotel lobbies to win Mr Cherney's blessing for their business deals.
As Mr Deripaska made his way up, "protection" rackets run by organised crime groups were gradually taken over by law enforcement agencies. Mr Deripaska sided with them as he strengthened his ties with the country's ruling elite, marrying Yeltsin's granddaughter Polina in 2001 and creating a powerful security service of his own.
By the time Mr Deripaska moved to consolidate control over 70 per cent of the nation's aluminium output in 2000, former bosses of two big smelters, Kraz and Novokuznetsk, facing criminal sentences, opted to sell their stakes to him and his then partner, Roman Abramovich. Soon after the sales, the criminal charges were either lifted or the sentences suspended. The bosses later filed suits in international courts against Mr Deripaska for allegedly coercing them into selling their stakes but eventually settled out of court.
According to one banker,Mr Deripaska's marriage into the Yeltsin family cemented his leap. "By the time Oleg got married, he really was representing the family," says one banker with knowledge of the matter. "It's a family partnership. You don't mess with ex-presidents or their families."
Mr Deripaska maintains that what happened in the 1990s in the Russian aluminium business cannot be compared with any other country. "We had different conditions. It was anarchy." But he insists Mr Cherney had nothing to do with his business: "The role of [Michael] was very specific," he says. "This person had no relation to my business."
Mr Cherney left Russia in 1994, to live first in France and now Israel, but maintained business ties with Russia. He claims he has been bilked by Mr Deripaska, a former protégé seeking to block out his past. "Before we met he was no one," says Mr Cherney, who via his friendship with Oleg Soskovets, the Soviet Union's last metals minister and later deputy prime minister under Yeltsin, won early entry into the lucrative metals trade.
"Without my support, I don't think he would be in this big business," Mr Cherney goes on. "I introduced him to people in the west and in Russia. I defended him from attack . . . I proved he was a person who could do business and develop the company."
Mr Deripaska, according toMr Cherney, had been determined to come out on top: so much so that soon after Vladimir Putin succeeded Yeltsin as president, the tycoon asked Mr Cherney to leave the business.
By that time, Mr Cherney's name had become tarnished after Anatoly Kulikov, interior minister in the late 1990s, named him in connection with organised crime, as had numerous media reports. Mr Cherney says this was nothing more than a tactic by his enemies to blacken his name and push him out of business. Nothing, he stresses, has ever been proved. But, he adds, it was enough for Mr Deripaska to seek to buy him out.
Mr Deripaska grew up in a traditional Cossack village in the southern region of Krasnodar, where he lived with his grandparents after his mother handed him over to them at an early age. His father died when he was young. When his grandparents died, the state seized their home as part of a programme for breaking up Cossack settlements.
He moved from relative to relative for seven years, he says, until his mother returned and they went to live in a nearby town. But his time in the Cossack village without a real home left a lasting imprint.
"We are Cossacks of the Russian Federation. We are always prepared for war," he says. "This is a question of being able to deal with problems and with any situation. It is the case that difficulties are not a catastrophe. If there was a flood, you would just go out and deal with it. You solve the problem."
Mr Deripaska appeared to hone his problem-solving skills so well that he landed a place to study quantum physics at Moscow State University. But before he could start the course, he was sent to serve in the missile forces of the Soviet army, stationed on a barren steppe on the border with China.
By the time he returned to university, the Soviet Union was on the brink of collapse and other opportunities outside academic work were suddenly openingup. He joined a Moscow raw materials exchange, discovering that the sums to be made on arbitrage as prices were liberalised and inflation soared were astronomic. It soon became clear that aluminium trading had the biggest future. Back then a tonne of aluminium cost about $70 in Russia and could be sold on international exchanges for $1,600.
In contrast to the western groups that had worked with the Soviet trade ministries previously, Trans-Commodities, Mr Cherney's company, brought officials real cash, Mr Cherney recalls of the early barter schemes in which they exchanged coal for cars and then moved on to aluminium too. Instead of rolling up with a bottle of whisky and a carton of Marlboros as the western companies did, Mr Cherney said: "We came with money."
In those days, he says, "nothing was forbidden . . . There were so many loopholes . . . I was outside the system but I always stayed on the edge of the law."
By 1994, when shares in the nation's aluminium industry were up for sale, Mr Deripaska - then 25 - sought out Transworld, the aluminium trader co-owned by Mr Cherney's younger brother Lev along with David and Simon Reuben, two London-based traders. He wanted to become general director of the Siberia-based Sayansk aluminium plant, in which the group was a shareholder.
That succeeded and Mr Deripaska worked with Transworld until 1997. Co-operating with the group was the "only way to trade" and gain access to cheap credits. "They controlled all the raw materials supplies at the time." In a period when the industry was wracked by conflict, Mr Deripaska stayed on the sidelines. But in the one big assault on the Sayansk facility, when his commercial director was seriously wounded, Mr Deripaska says he hit back both by "destroying" the group behind the attack and by strengthening ties with local law enforcement.
But he and other plant managers tired of Transworld's dominance and wanted to invest more in developing the business. "These people pretended they were connected, that they helped build the business. But they were in Israel, London. What can you do from there? . . . We felt that we can't just suck all the resources out of the country."
For his part, Mr Cherney says he made an investment in the domestic industry jointly with Mr Deripaska and backed him in splitting from Transworld and establishing control over key raw materials suppliers, notably for alumina. But Mr Deripaska says he did so alone, as he expanded his holdings to create Sibirsky Aluminium, known as Sibal.
In 2000, Transworld sold out to Mr Abramovich, owner of the oil company Sibneft. Gradually, other shareholders of smelters sold out either to Mr Abramovich or Mr Deripaska. Mr Abramovich agreed to merge his holdings with Mr Deripaska's Sibal to form Rusal, then progressively reduced his stake. That provided additional holdings for Mr Deripaska, who by then controlled more than 70 per cent of Russia's aluminium output.
At this point Mr Deripaska and Mr Cherney parted ways, according to disclosures made by Rusal to the European Bank for Reconstruction and Development and the World Bank's International Finance Corporation and by Mr Cherney himself to the Russian press.
The deal involved a 17.5 per cent stake Mr Cherney held in Sibal changing hands for $250m. But now Mr Cherney claims this was just the first stage in an arrangement under which Mr Deripaska would buy out what he says was his 50 per cent holding in Sibal.
After diversifying into other industries, Mr Deripaska's holding company, called Basic Element, spans timber, insurance, banking, mining, airports, construction and carmaking: it generated $18.5bn in revenues last year.
"We are trying to move from the principle of just buy and sell," a principle which he says has plagued Russia's short-termist business elite since the 1990s. "Now it is time to rebuild production," he says, adding that he wants to invest up to $3bn a year in rebuilding the country. More than that, he says, is not possible - because of a lack of managers to run the operations.
The new mantras of organisation on the production line - listed on a chart in the factory entrance as including "people are the most valuable asset" - have raised productivity, notably at GAZ, Russia's second biggest carmaker.
Mr Deripaska is steering clear of politics and says he does not care about public image - even as discontent over the vast fortunes of the oligarchs disgruntles most of the population and much of Mr Putin's hardline administration too.
Mr Putin's Kremlin has jailed or sent into exile some of the most prominent oligarchs of the 1990s, most notably in its case against Mikhail Khodorkovsky, the Yukos owner spending at least eight years in a Siberian prison camp for fraud and tax evasion while his company has been taken over by the state. As the Kremlin sought to right the wrongs of the 1990s, it has increased its control over other companies such as AvtoVAZ, another carmaker, and Avisma, the titanium producer.
So is, as some suggest, the London IPO for Rusal a defensive move to head off any Kremlin takeover threat? Mr Deripaska says that, first, he is not interested in the IPO, indicating that Rusal's other shareholders are the driving force. "Sell Rusal to buy what?" he asks. "There are only about 250 good companies in the world that you can buy that will exist in 75 years' time."
Moreover, unlike at Yukos, he would be ready to transfer Rusal back to the state at any moment, he declares. "If the state says we need to give it up, we'll give it up," he says. "I don't separate myself from the state. I have no other interests."
"I don't need to defend myself. I am not ashamed and I don't need to hide. For me it's just interesting to develop a company in the long term." As for his tumultuous career, Mr Deripaska says: "History will judge."
"I was lucky," he adds. "Just consider that everything fell from the sky."
Copyright The Financial Times Limited 2007
It is 9am in Krasnoyarsk, western Siberia. Oleg Deripaska, Russia's second richest man, has headed from his Gulfstream private jet to the boardroom at Kraz, the world's second largest aluminium smelter and the heart of his UC Rusal
The two men are standing in front of a flow-chart and speaking about Kraz's gemba, the Japanese word for factory floor. Mr Deripaska has become an enthusiastic convert to the Toyota "way", as taught by Mr Youmans. "Don't call me a guru, I'm a coach," the latter says.
Two Russian plant directors watch their bosses circumspectly and await instructions, their heads bowed, as Mr Youmans expands on his theory: "We aim to have an impact like the expanding ripple of a pebble dropped in the water," he says.
The touchy-feely scene is a world away from a decade ago when Kraz, a symbol of Soviet industrial might, was the grim frontline in a bloody turf war for control of nearly 5 per cent of world aluminium supplies. Management frequently changed hands in armed struggles and three executives linked to the plant were slain. Mr Deripaska is, metaphorically at least, the last man standing from this conflict - and has much to show for his efforts.
Rusal is the world's biggest aluminium producer - though it will be overtaken by Rio Tinto and Alcan once the merger announced yesterday between the two rivals is concluded. At 39, Mr Deripaska is worth more than $23bn (£11bn, €17bn), along the way becoming the grandson-in-law of Boris Yeltsin, Russia's late president. He says he has been fortunate in many respects - some of his biggest competitors exited on their own.
There was, for example, Anatoly Bykov, the Krasnoyarsk aluminium kingpin who sold out to him after being jailed on what he said were trumped-up charges. Then there was Anton Malevsky, a reputed head of an organised crime group that haunted the industry: he perished on holiday in South Africa when his parachute failed to open. "He liked living on the edge," Mr Deripaska says.
For years, being associated with the Russian aluminium industry was a public relations nightmare. But now Mr Deripaska is repositioning himself, expanding his holdings out of aluminium to plough billions of dollars in investments into timber, construction, aircraft and cars. He is also preparing to take Rusal, which this year took over the rival Sual and the alumina assets of the Swiss-based Glencore, to a full London Stock Exchange listing as soon as November, in an initial public offer expected to raise as much as $9bn.
But despite Mr Deripaska's success at putting the past behind him, one former associate refuses to be quiet. As the IPO nears, Michael Cherney, a controversial founding father of Russia's post-Soviet aluminium industry, says he is preparing to refile a claim for 20 per cent of Rusal, the holding he says he is owed from what he describes as a 50-50 partnership with Mr Deripaska for most of the 1990s.
A document filed as part of the case in the London High Courtis in circulation that sets outMr Cherney's claim to the stake. Mr Cherney says his lawyers are preparing to submit thousands more documents proving their partnership. As the legal battle brews, the case is throwing the spotlight on Mr Deripaska's rise to the top of an industry once wracked with crime. The outcome and whether it has an impact on the IPO will do much to determine investor attitudes toward Russia's progress and whether a company with such a controversial past can win a London listing. It could also determine the future of Mr Deripaska's holdings as the Kremlin continues its drive to take back control of strategic sectors of the economy, from oil to aerospace to automobiles, with many observers predicting the metals industry could be next.
Making matters worse, the US State department recently confirmed it was denying entry to Mr Deripaska, after granting him a visa in 2005-06. It will not disclose the reason for its decision.
Mr Deripaska denies he ever worked in partnership with Mr Cherney. Mr Cherney says he is merely seeking to enforce his rights. While the two disagree over their roles, their tale tells much of how Russian business has evolved from the early 1990s when, according to one insider, businessmen queued in hotel lobbies to win Mr Cherney's blessing for their business deals.
As Mr Deripaska made his way up, "protection" rackets run by organised crime groups were gradually taken over by law enforcement agencies. Mr Deripaska sided with them as he strengthened his ties with the country's ruling elite, marrying Yeltsin's granddaughter Polina in 2001 and creating a powerful security service of his own.
By the time Mr Deripaska moved to consolidate control over 70 per cent of the nation's aluminium output in 2000, former bosses of two big smelters, Kraz and Novokuznetsk, facing criminal sentences, opted to sell their stakes to him and his then partner, Roman Abramovich. Soon after the sales, the criminal charges were either lifted or the sentences suspended. The bosses later filed suits in international courts against Mr Deripaska for allegedly coercing them into selling their stakes but eventually settled out of court.
According to one banker,Mr Deripaska's marriage into the Yeltsin family cemented his leap. "By the time Oleg got married, he really was representing the family," says one banker with knowledge of the matter. "It's a family partnership. You don't mess with ex-presidents or their families."
Mr Deripaska maintains that what happened in the 1990s in the Russian aluminium business cannot be compared with any other country. "We had different conditions. It was anarchy." But he insists Mr Cherney had nothing to do with his business: "The role of [Michael] was very specific," he says. "This person had no relation to my business."
Mr Cherney left Russia in 1994, to live first in France and now Israel, but maintained business ties with Russia. He claims he has been bilked by Mr Deripaska, a former protégé seeking to block out his past. "Before we met he was no one," says Mr Cherney, who via his friendship with Oleg Soskovets, the Soviet Union's last metals minister and later deputy prime minister under Yeltsin, won early entry into the lucrative metals trade.
"Without my support, I don't think he would be in this big business," Mr Cherney goes on. "I introduced him to people in the west and in Russia. I defended him from attack . . . I proved he was a person who could do business and develop the company."
Mr Deripaska, according toMr Cherney, had been determined to come out on top: so much so that soon after Vladimir Putin succeeded Yeltsin as president, the tycoon asked Mr Cherney to leave the business.
By that time, Mr Cherney's name had become tarnished after Anatoly Kulikov, interior minister in the late 1990s, named him in connection with organised crime, as had numerous media reports. Mr Cherney says this was nothing more than a tactic by his enemies to blacken his name and push him out of business. Nothing, he stresses, has ever been proved. But, he adds, it was enough for Mr Deripaska to seek to buy him out.
Mr Deripaska grew up in a traditional Cossack village in the southern region of Krasnodar, where he lived with his grandparents after his mother handed him over to them at an early age. His father died when he was young. When his grandparents died, the state seized their home as part of a programme for breaking up Cossack settlements.
He moved from relative to relative for seven years, he says, until his mother returned and they went to live in a nearby town. But his time in the Cossack village without a real home left a lasting imprint.
"We are Cossacks of the Russian Federation. We are always prepared for war," he says. "This is a question of being able to deal with problems and with any situation. It is the case that difficulties are not a catastrophe. If there was a flood, you would just go out and deal with it. You solve the problem."
Mr Deripaska appeared to hone his problem-solving skills so well that he landed a place to study quantum physics at Moscow State University. But before he could start the course, he was sent to serve in the missile forces of the Soviet army, stationed on a barren steppe on the border with China.
By the time he returned to university, the Soviet Union was on the brink of collapse and other opportunities outside academic work were suddenly openingup. He joined a Moscow raw materials exchange, discovering that the sums to be made on arbitrage as prices were liberalised and inflation soared were astronomic. It soon became clear that aluminium trading had the biggest future. Back then a tonne of aluminium cost about $70 in Russia and could be sold on international exchanges for $1,600.
In contrast to the western groups that had worked with the Soviet trade ministries previously, Trans-Commodities, Mr Cherney's company, brought officials real cash, Mr Cherney recalls of the early barter schemes in which they exchanged coal for cars and then moved on to aluminium too. Instead of rolling up with a bottle of whisky and a carton of Marlboros as the western companies did, Mr Cherney said: "We came with money."
In those days, he says, "nothing was forbidden . . . There were so many loopholes . . . I was outside the system but I always stayed on the edge of the law."
By 1994, when shares in the nation's aluminium industry were up for sale, Mr Deripaska - then 25 - sought out Transworld, the aluminium trader co-owned by Mr Cherney's younger brother Lev along with David and Simon Reuben, two London-based traders. He wanted to become general director of the Siberia-based Sayansk aluminium plant, in which the group was a shareholder.
That succeeded and Mr Deripaska worked with Transworld until 1997. Co-operating with the group was the "only way to trade" and gain access to cheap credits. "They controlled all the raw materials supplies at the time." In a period when the industry was wracked by conflict, Mr Deripaska stayed on the sidelines. But in the one big assault on the Sayansk facility, when his commercial director was seriously wounded, Mr Deripaska says he hit back both by "destroying" the group behind the attack and by strengthening ties with local law enforcement.
But he and other plant managers tired of Transworld's dominance and wanted to invest more in developing the business. "These people pretended they were connected, that they helped build the business. But they were in Israel, London. What can you do from there? . . . We felt that we can't just suck all the resources out of the country."
For his part, Mr Cherney says he made an investment in the domestic industry jointly with Mr Deripaska and backed him in splitting from Transworld and establishing control over key raw materials suppliers, notably for alumina. But Mr Deripaska says he did so alone, as he expanded his holdings to create Sibirsky Aluminium, known as Sibal.
In 2000, Transworld sold out to Mr Abramovich, owner of the oil company Sibneft. Gradually, other shareholders of smelters sold out either to Mr Abramovich or Mr Deripaska. Mr Abramovich agreed to merge his holdings with Mr Deripaska's Sibal to form Rusal, then progressively reduced his stake. That provided additional holdings for Mr Deripaska, who by then controlled more than 70 per cent of Russia's aluminium output.
At this point Mr Deripaska and Mr Cherney parted ways, according to disclosures made by Rusal to the European Bank for Reconstruction and Development and the World Bank's International Finance Corporation and by Mr Cherney himself to the Russian press.
The deal involved a 17.5 per cent stake Mr Cherney held in Sibal changing hands for $250m. But now Mr Cherney claims this was just the first stage in an arrangement under which Mr Deripaska would buy out what he says was his 50 per cent holding in Sibal.
After diversifying into other industries, Mr Deripaska's holding company, called Basic Element, spans timber, insurance, banking, mining, airports, construction and carmaking: it generated $18.5bn in revenues last year.
"We are trying to move from the principle of just buy and sell," a principle which he says has plagued Russia's short-termist business elite since the 1990s. "Now it is time to rebuild production," he says, adding that he wants to invest up to $3bn a year in rebuilding the country. More than that, he says, is not possible - because of a lack of managers to run the operations.
The new mantras of organisation on the production line - listed on a chart in the factory entrance as including "people are the most valuable asset" - have raised productivity, notably at GAZ, Russia's second biggest carmaker.
Mr Deripaska is steering clear of politics and says he does not care about public image - even as discontent over the vast fortunes of the oligarchs disgruntles most of the population and much of Mr Putin's hardline administration too.
Mr Putin's Kremlin has jailed or sent into exile some of the most prominent oligarchs of the 1990s, most notably in its case against Mikhail Khodorkovsky, the Yukos owner spending at least eight years in a Siberian prison camp for fraud and tax evasion while his company has been taken over by the state. As the Kremlin sought to right the wrongs of the 1990s, it has increased its control over other companies such as AvtoVAZ, another carmaker, and Avisma, the titanium producer.
So is, as some suggest, the London IPO for Rusal a defensive move to head off any Kremlin takeover threat? Mr Deripaska says that, first, he is not interested in the IPO, indicating that Rusal's other shareholders are the driving force. "Sell Rusal to buy what?" he asks. "There are only about 250 good companies in the world that you can buy that will exist in 75 years' time."
Moreover, unlike at Yukos, he would be ready to transfer Rusal back to the state at any moment, he declares. "If the state says we need to give it up, we'll give it up," he says. "I don't separate myself from the state. I have no other interests."
"I don't need to defend myself. I am not ashamed and I don't need to hide. For me it's just interesting to develop a company in the long term." As for his tumultuous career, Mr Deripaska says: "History will judge."
"I was lucky," he adds. "Just consider that everything fell from the sky."
Copyright The Financial Times Limited 2007