Financial trouble grows for oligarch with friends in high places

Oleg Deripaska, the cash-strapped Russian industrial tycoon, is facing problems with his investments in the Balkan republic of Montenegro and is suing the government of the country for €300m (£240m).

Mr Deripaska, who owns the country's biggest aluminium plant, has become embroiled in a dispute with the newly independent state where investors including Nathaniel Rothschild are also investing in real estate and developing exclusive tourist spots.

Mr Deripaska's company, Basic Element, owns Kombinat Aluminijuma Podgorica (KAP), the giant aluminium plant which alone accounts for about a fifth of Montenegro's gross domestic product and a big wedge of its exports. He is demanding damages from the Montenegrin government over the 2005 deal to buy the plant. Mr Deripaska alleges in the suit, filed at an international trade court in Frankfurt, that the state of Montenegro misled him on the value of KAP, making him pay more than it was worth.

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The political and business leaders of Montenegro, which split from Serbia in 2006, are considering what to do next over Mr Deripaska's claim, in a move that could see him withdraw his investment. It remains to be seen what would then happen to his other investments in Montenegro, which include an exclusive tourism site.

Mr Deripaska and Mr Rothschild were among investors in Porto Montenegro marina, a haven for big yachts and real estate under construction in the former naval base of Tivat.

A spokesman for Mr Deripaska played down the likelihood of the oligarch withdrawing all his interests in Montenegro, saying "we do not anticipate any effect [of the KAP dispute] on other investments in the country".

The news comes at a bad time for Mr Deripaska, who is already relying on the Russian Prime Minister Vladimir Putin to bail him out in refinancing about $2.5bn (£1.6bn) in loans due to be repaid this week. The sum is part of a $4.5bn loan Mr Deripaska took out for the acquisition of a 25 per cent stake in the Russian metal producer Norilsk Nickel, a situation that sees him opposed to a rival billionaire, Vladimir Potanin, in a fight to control the company.

Mr Deripaska, 40, is the sole owner of Basic Element, a diversified investment company with assets in energy, natural resources, manufacturing, financial services, construction and aviation. Basic Element's biggest business units include Rusal, the world's largest aluminium and alumina producer; the GAZ automotive company; Soyuz Bank, the Ingosstrakh insurance company, and Aviacor, an aircraft manufacturer.

Born in 1968, Mr Deripaska grew up and went to school in the Krasnodar region of southern Russia, close to the Black Sea. He travelled to Moscow to study and, on graduating, he set up a small metals trading operation. He used its profits to buy a stake in the Sayanogorsk Aluminum Smelter in Eastern Siberia, becoming its director-general in 1994.

In 1997, the smelter became the main asset of the Sibirsky Aluminum Group. In 2000, Mr Deripaska became director-general of Rusal, created by the merger of aluminium assets owned and operated by Sibirsky and the Russian oil company Sibneft. By 2007, it has become the world's third-largest aluminium producer. That same year, it joined with SUAL Group, another of the world's largest aluminium producers, and Glencore, a Swiss natural resources group.

Basic Element was established by Mr Deripaska in 2001 to expand his business interests beyond the aluminium industry. Mr Deripaska borrowed extensively in the permissive debt markets of recent years to expand his businesses. But he was recently caught short by the credit crunch and the fall in Russian stocks.

The Liberal Democrats sought to add to Mr Deripaska's woes yesterday by pushing for the banks to whom the loan is owed to take a hard line. The party's Treasury spokesman Vince Cable has written to the chairman of RBS, one of the creditors, and the Business Secretary Lord Mandelson to demand that the loan given to Mr Deripaska be repaid this week as currently scheduled. Mr Cable argued that the Government should use its recently acquired stake in RBS to exert pressure on the bank.

"The Royal Bank of Scotland is now supported by the British taxpayer and its priority should be to allocate credit to British companies, particularly small firms, that are being squeezed by the credit crunch," said Mr Cable. "It would be absolutely wrong for a bank dependent on taxpayer funding to tie up large amounts of capital in international loans of this kind."

Mr Deripaska has been exiting some of his investments recently as he struggles with high amounts of debt. His Russian Machines unit relinquished its stake in the car parts maker Magna International earlier this month, citing "the current financial crisis". Basic Elements has also sold its 10 per cent stake in the German building materials maker Hochtief.

Mr Deripaska has become better-known in the UK this month for his role in a political scandal that is engulfing both the Conservative and Labour parties. George Osborne, the shadow Chancellor, is alleged to have sought a donation to the Conservative Party from Mr Deripaska aboard his yacht this summer, although Mr Osborne denies soliciting any funds.