Torbjörn Törnqvist’s explains Gunvor’s success (interview)

Torbjörn Törnqvist, Gunvor’s dicreet oil trading giant Gunvor’s co-owner (along with Gennady Timchenko) gave an exclusive interview to Swedish business magazine Affars Varlden.According to me, the most interesting part of this rare interview is not Törnqvist’s unprecedented explanations about the various allegations made toward Gunvor (funny though how he explains that this type of rumours did not harm his business at all!!!), but his sharp description of oil business.

A post from my blog Mytruthaboutoil, a blog dedicated to this unknown but yet hugely wealthy and strategic business sector.

 

The English version of the interview:

 

INTERVIEW :

TORBJÖRN TÖRNQVIST
 
His company has a greater turnover than Ericsson. Now he is going to look for oil with the Lundin family. For the first time Torbjörn Törnqvist tells how he built up the Gunvor Group to one of the world’s largest oil-trading enterprises. And he comments on all kinds of rumors about the enterprise.Secret Oil Billionaires

TEXT: ERIK WAHLIN • PHOTO: JESSE MORGAN

The oilman Torbjörn Törnqvist is keeping a very low profile. Once in a while, however, he leaves his mark in the flow of news. But he does it on the sly.
A case in point was the Gotland Runt sailing regatta last summer. After a three-day intensive duel, his Artemis was beaten by a shameful four minutes by Niklas Zennström’s boat Ran which consequently won the Grand Open IRC in the big boat class. The world’s third largest standalone oil-trading company, Gunvor Group, is owned by the 55-year-old Swede together with a Russian, Gennady Timtchenko. In ten years, Gunvor has grown from scratch to a company handling one third of Russian oil exports.

The head office is located in the Swiss city of Geneva. Elsewhere, the company is represented in Singapore, New York, Moscow, St Petersburg, New York, Beijing, Amsterdam, Helsinki and Nigeria. Its offices house 300 employees, most of whom are tied to trading desks where tens of thousands of tons of crude oil, gasoline, petroleum, kerosene and other petroleum products change hands every day. The Gunvor Group has at its disposal thousands of railway cars, several oil terminals and a vast fleet of vessels on a long-term lease.

Now, in his first fairly lengthy and in depth interview in the Swedish media, Torbjörn Törnqvist gives an insight into how this business operates. And it is much more advanced than simply guessing the oil price.

“We are here to smooth out global imbalance. We work on a large scale. We freight very large vessels globally; from here to Singapore where we use smaller ships. We must be highly skilled in shipping in order to match prices on the freight market with our needs. And we trade in relative values: one continent for another, one type of crude oil for another, one time period for another. All this is combined in an advanced matrix so that one can earn money.”  And so he does. Last year Gunvor Group had a turnover of 65 billion dollars (450 billion kronor). Because the oil price is considerably lower this year, he expects the turnover to sink to 45-50 billion dollars. But the company is further increasing its volume: from 90 million tons of oil to 110-115 million tons.

The Group’s actual results, however, are a secret. Torbjörn Törnqvist points out that trading activity has “ridiculously small margins”. In their case the profit is “as a rule, a little over or under 1 percent of the turnover”. Approximately in the same bracket are the strongest competitors in the oil trade: Glencore and Vitol. They certainly should earn a fair penny with a 1 percent margin; the profit last year would have been 4.5 billion kronor only to fall this year to 3-3.5 billion kronor.

“We have a good return on our own capital. Do we earn more than a billion dollars a year? No, we don’t – at least not now. We are in a good financial situation, but we take very little out of the company. We leave the money in the company for growth and investments”, says Torbjörn Törnqvist by telephone from Geneva.

The above figures have never been published before. Gunvor Group does not have an open annual report (the above information comes directly from Torbjörn Törnqvist). Gunvor is owned by a Dutch company which is owned by a Cyprus-registered company which is owned by a holding company, Clearwater Advisors, in the British Virgin Islands. Page numbers are the only figures in the company’s official information brochure. The company and its two owners have so far avoided the public limelight (with some striking exceptions).

“In general, we try to be more transparent. We are global now and make direct investments. It is not so that we can make an IPO or that we want to become better known. There are other reasons why publicity is not such a bad thing. However, commercially there are limits to what we can report.

Precisely such a direct investment has become known this September: Lundin Petroleum has reported that the Gunvor Group is joining as a part-owner of the Russian Lagansky block, conditional on the Russian authorities approving the deal. The development is expected to cost well over 1 billion US dollars (7 billion kronor). If large oil reserves are found, the project may cost still more. Lundin Petroleum owns 70 percent of the block. Gunvor Group owns 30 percent and will not have to borrow funds to finance its portion of the investment.

It was Lundin Petroleum which initiated contact with the Gunvor Group. Until then Torbjörn Törnqvist had met the Lundin family, but never in the context of the oil industry. For example, he and Ian Lundin sit on the board for the Swedish Chamber of Commerce in Switzerland (like Jacob Wallenberg).

“Lundin Petroleum is an enterprise with which we can cooperate. In size, we don’t differ much, which is an advantage. We remain equal in strength. Previous work with an oil major had not gone well. Besides, we have the same view on the state of things”, says Torbjörn Törnqvist, who does not rule out more deals with Lundin in the future.

The project, which will see Lundin drilling for oil by the Caspian Sea, is technically complex. Before now the Lundin brothers had also lacked a strong partner. The Gunvor Group’s contribution to the project extends beyond the financial. The company has also extraordinarily good contacts within the Russian oil industry.

For Gunvor Group, the Lagansky project is its first direct investment in a drilling project. Until now, Gunvor has been buying oil pumped by somebody else, especially in Russia. Investment alongside Lundin Petroleum is part of Torbjörn Törnqvist’s and Gennady Timshenko’s strategy to grow from a well-organized oil trading company, to an integrated global energy concern. More about these plans will follow below. Let us start from the beginning.

TORBJÖRN TÖRNQVIST was born in Solna in 1953. He studied economics at Stockholm University and immediately thereafter began his career in the oil business. His first job was as a trainee at BP (Svenska Bensin and Petroleum AS). In 1983, he was courted by the Swedish oil-trading company STC and hired to the company by Mats Arnhog. The Scandinavian Trading Company was, in the late 1970s and early 1980s, amongst the top operators in the Stockholm financial world, and part of Anders Walls’ financial empire. For a little while STC was even the largest shareholder of Volvo.

But it turned out to be a very sensitive “profit making machine”. 1983 saw an oil price crash causing a major blow to the fortunes of the STC Empire. Volvo subsequently took over ownership of STC, where Torbjörn Törnqvist stayed until 1989. He departed to take up the position of executive (general) director at the Swiss oil-trading enterprise Inter Maritime Group.  In 1995 Törnqvist started his own business with Tallinn as his base of operations. Among other ventures, he ran an oil-trading enterprise in partnership with a couple of local businessmen. He saw opportunities in the recent collapse of the Soviet power. There were enormous oil reserves in Russia, but it was no child’s play to take the black liquid from the ground and put it on the world market. The country was in chaos and the infrastructure was catastrophically underdeveloped.

It was during the 1990s that Törnqvist became acquainted with Gennady Timtchenko, a man with an almost perfect background in the Soviet oil industry. In particular, in the late 1980s Timtchenko was executive director at a state-owned oil-exporting enterprise, Kinex. Following the break-up of the Soviet Union he became a part-owner at a newly privatized company. Timtchenko then moved to Helsinki from where he continued to do business in the former communist empire.

The oilmen went into business together in 1997. Their joint venture was later given a Scandinavian-sounding name: “Gunvor”.

“We set up a small joint venture before we knew what it would lead to. The name is known worldwide. It can be heard and pronounced on all continents and in all languages. I like it, there is no deeper explanation”, says Törnqvist.

In 2002 the two men merged their business activities. Both Gennady Timtchenko and Torbjörn Törnqvist moved to live near to each other in Geneva. This facilitated the quick expansion and globalization of Gunvor.

The Gunvor Group became a leading company in the export of Russian oil, which was transported in railway cars to Tallinn or through pipelines to the Baltic States and to the Black Sea. Gunvor concluded agreements with such giants as Gazprom, Rosneft and Surgutneftegaz. This was taking place in the wake of the collapse of the stand-alone Russian oil giant Yukos after its owner, Mikhail Khodorkovski, had been jailed for tax evasion and fraud. The map of the Russian oil and gas industry was redrawn.

Five years after the company’s expansion had begun, Gunvor was handling one third of total Russian oil exports.

“There is an awfully tough competition for contracts. Each time we fight in Russia against such companies as Exxon, Vitol, Total and Shell. All are there. We must be sharp in order to earn money. We must be big; global. We allocate oil to exactly where it is needed, at the right price, at the right time. This is the key.”

Charges of corruption naturally followed the company’s success. For instance, there was the rumour that Russian Prime Minister, Vladimir Putin, was a hidden part-owner in Gunvor. In the latest long interview with Torbjörn Törnqvist, published in the British Financial Times last spring, a large spread article tried to analyze the means by which Gunvor had become the leading oil exporter in Russia. The theory was that Gunvor, more specifically Gennady Timtchenko, had a secret and very powerful friend. One justification offered for this allegation was the claim that Timtchenko and Putin had attended the same judo club in St Petersburg.

 A week after the publication the Financial Times printed a letter from Gennady Timtchenko. He denied that he was a close friend of Vladimir Putin and that he had a KGB background: “The insinuations and allegations in the article are false. My career of more than 20 years in the oil industry has not been built on personal favors and political contacts”.
“Oddly enough, the rumors did not actually hurt us. It is not bad that it is rumored that we have extensive good contacts; that we know the president. There is no harm in knowing the president in any country. Yet, it is not true. I have never met [the now prime minister] Putin. Gennady may have seen him by chance when they happened to be at the same place on some occasions”, says Torbjörn Törnqvist.

The rumors around the Gunvor Group began to spread following the publication of the Financial Times article. The essence of the allegation was repeated in a number of articles in the international press. Gennady Timshenko confined himself to writing letters to the publications in question, but with one exception. When the Economist, in an article on corruption in Russia (“Grease my palm”), alluded that graft (bribery) was Gunvor’s key to success, Timshenko chose to sue the newspaper, considered to be a respectable publication.

On July 30 of this year the Economist published an apology which in principle implied its retraction of the whole article.

According to Torbjörn Törnqvist, the rumors around Gunvor are more than just accidental. “There is an opposition in Russia that operates from abroad”, he asserts. “These people want to portray Putin as corrupt and are spreading these rumors. The Gunvor Group has become a pawn in the game.”

But how then has the Gunvor Group become so big in such a short time? The reason for this is, of course, the accelerating oil price during the 2000s. Another factor is that the transport and export of oil up to several years ago was extremely inefficient in Russia. Competition was not that harsh.

“The Gunvor Group,” asserts Torbjörn Törnqvist, “has played a leading role in making oil export from Russia more efficient.” But he doesn’t make any secret of the fact that the company has a formidable contact network in Russia.

“I have worked in Russia since the BP-times. To be successful in Russia one must be in the right place. Personal contacts mean a great deal. I have my share of contacts. And my partner’s contacts are excellent and fantastically comprehensive.”

At the same time, Torbjörn Törnqvist tries to tone down the mysticism around what “contacts” really mean in practice. Such contacts allow companies to ask for points of view on how questions of a purely technical nature can be solved. In this way relationships are established between top managers in the Russian oil industry.

Today Torbjörn Törnqvist and Gennady Timtchenko jointly own more than 95 percent of the Gunvor Group; an equal share for each partner. The remaining percentage is reserved for key personnel. There was a third owner of Gunvor, a Russian businessman who helped to finance the company during its expansion. Last year Törnqvist and Timtchenko bought out his share. Torbjörn Törnqvist refuses to disclose the third owner’s name.

“He was a passive and private shareholder. Banks and others know who he is, but we must respect his desire to remain “low key”.”

According to other press reports this anonymous partner had controlled 20 percent of the company.

Torbjörn Törnqvist rules out a flotation of Gunvor – in any case, not today. The company does not need more capital in order to implement its current strategy. On the other hand, he does not rule out that some activities at Gunvor might be opened to outside investors and specifically names exploration. Whether it will happen in this case through an exchange or through a private investor is a question to be solved later. Torbjörn Törnqvist is a working chairman and is responsible for the company’s global expansion. Gennady Timtchenko normally does not occupy himself with the day-to-day operations of Gunvor; he deals principally with large investments.

For example, it is Gennady Timtchenko who is responsible for the Gunvor Group’s new oil terminal, one of the largest of its kind in the world. The terminal is being built in the Gulf of Finland, at Ust-Luga in Russian territory. It involves an investment of 800 million dollars (5.6 billion kronor) in the first phase. 25 million tons of oil products can be shipped from there for export every year.

“We are not the only ones who will use it. The main Russian oil companies will be offered opportunity to buy capacity. We look upon this as an infrastructure investment and a way to diversify our activities.”

The Gunvor Group is seeking to expand its activities beyond its main business line: the export of Russian oil. The volume increase in oil over the last years has predominantly derived from outside Russia. Today some 30 percent of crude oil handled by the Gunvor Group comes from other countries. At present the company has long-term agreements with companies in Nigeria, Ecuador, Thailand, Oman and Indonesia, amongst others.

The diversification strategy will also see Gunvor drilling for its own oil, an example being the venture with Lundin Petroleum. But the Group is also seeking opportunities outside oil. A new division of Gunvor was launched on September 1st which will handle natural gas, electricity and emission rights. For the first time the company is hiring a daughter company executive director: Paymon Allabadi. In the past desk managers have reported directly to Torbjörn Törnqvist.

“This time around I don’t know enough about the activity and need an executive director. The division is also a link in that Gunvor is developing to a globally integrated energy-trading company. This will be followed by several investments in infrastructure, and we do not rule out exploration. We have just started, but this is in the future.”

Torbjörn Törnqvist was registered as residing in Switzerland six years ago. But he has not lost contacts with his native country; far from it. As mentioned above, he sits on the board of directors of the Swedish Chamber of Commerce in Switzerland. For nearly three years now he has been Swedish honorary consul in Geneva. It means that he personally finances a consulate, a service unit subordinate to the embassy in Bern. Those who have a need and have made an appointment can visit Gunvor’s head office on the shore of the Lake of Geneva and get a special passport.

“I have a Swedish soul and will remain a Swede at heart until the day I die. Wherever I live, I have a strong affection towards Sweden. The attraction to the blue-yellow (Swedish national color) is also seen in his passion for sport.”

Torbjörn Törnqvist is said to be a very skilful amateur tennis player, and he enjoys skiing (which, of course, is much fun in Switzerland). But, above all, he is now the owner of a world class racing yacht, Artemis, which sails under the Swedish flag. He took up sailing in his own TP 52 as recently as four years ago. These are enormous boats, as fast as the wind, with 13 professional crew members racing around the world. It speaks for itself that this is not an inexpensive sport.

Only a year later Artemis won the Med Cup and the unofficial world championship with Torbjörn Törnqvist at the helm.

“We had a very good crew: the “dream team;” the best from America’s Cup. We had a fast boat. I was good enough for us not to lose despite all advantages. I keep on learning and am glad that I can take part in these events with the very best in the world. This is a fantastic environment which gives me a lot of stimulus and relaxation.”

The big news for all Swedish sailing fans is that Swedish Challenge Artemis will take part in the Louis Vuitton Cup, the most prestigious sailing competition in the world after the problem-ridden America’s Cup. The first regatta is to be held in Nice in November. This time it will be a pro and not Torbjörn Törnqvist who will stand at the helm. But he may still show up as a spectator.

“Yes, I love sailing races and feel that I will make further headway in this sport. Sponsorship remains scarce. I do it mostly for my own sake, but if one can put a “G” in the spinnaker, why not?”