Something in the water
The Khimich enigma: Is the Russian oil mogul giving up on Waiwera?
Everywhere he goes, Mikhail Khimich is accompanied by an air of excitement and mystique. But promises to transform sleepy Waiwera have so far come to nothing. In the first of a three-part series, the Herald investigates why his ventures have struggled.
Everywhere he goes, Mikhail Khimich is accompanied by an air of excitement and mystique - elements that define him as much as his fast European cars and ex-model girlfriends. It's been this way since the oil mogul from Moscow first landed in Auckland in 2008 to check on the refit of his sleek, black superyacht, Thalia.
While the lean, well-scrubbed Russian has been generally low-profile, he's courted publicity for events such as the February 2012 launch of his premium vodka range at the Royal New Zealand Yacht Squadron. Along with Waiwera Water - the bottled water he liked so much he bought the company - he's on hand at the best parties, from The Hobbit premiere to the opening of the national velodrome attended by royalty in April.
It was Khimich to the rescue when Team New Zealand ran into a cashflow crisis after the America's Cup defeat in San Francisco. He even enjoyed a private audience with the Duke and Duchess of Cambridge at the Avantidrome opening in (our) Cambridge, the Herald on Sunday later reported. Khimich has pledged a reported $1 million to the $28 million velodrome, where Waiwera Water is a gold sponsor.
Less welcome publicity includes a narrow escape from a drink-driving charge and an unfair dismissal claim settled out of court. Lately, media attention has focused more on his closely-guarded business ventures and the state of his empire, following the sale of Thalia in Palma de Mallorca for a reduced price and the marketing for sale of a 10ha farm block owned by Waiwera Water.
The farm site, 6km inland from Waiwera, was at first earmarked for a bottling plant to boost production and take Waiwera Water to new global markets. When local opposition grew to a bottling operation in a rural area, plans morphed into a niche organic winery and distillery, where medicinal wine could be sampled in tasting rooms alongside organic vodka, gin and rum produced under Khimich's Waiwera Spirits label. But four years on, only grass is growing on the land and the Overseas Investment Office has ordered that it be sold.
The failure to progress either option leaves both Waiwera Water and Waiwera Spirits hamstrung by production constraints (see panels) and former employees claim both businesses have been under-performing.
Another Khimich venture, the Robert Graham Institute for Water Research (named for the pioneer Waiwera spa developer), has failed to progress its stated goal of "unlocking further potential" for thermal resorts to benefit the New Zealand economy. And promises to upgrade the Waiwera hot pools, one of Auckland's leading leisure drawcards, remain in limbo.
Mikhail Khimich arrives at Halberg Awards at Vector Arena in 2013 with model Maria Didarova. Photo: Norrie Montgomery
Waiwera Group CEO Lloyd Brown says there's been a necessary focus on the water and spirits businesses and plans for the hot pools are in train.
The property sale follows Khimich's last-minute withdrawal last year from the purchase of the old Waiwera camping ground - beachfront land where he outlined plans for an international spa resort costing $30-$50 million and creating hundreds of jobs.
Both intended land purchases, from former Waiwera kingpin and business partner John St Clair Brown, required Overseas Investment Office (OIO) approval - the camping ground as coastal land and the winery block as farmland bigger than 5ha. Our rules generally encourage foreign investments which promise jobs, export earnings and increased development and the National Government has streamlined the process to minimise delays. But the OIO took 20 months before approving the Khimich purchases after satisfying itself that he was a person of good character.
Khimich told the OIO his wealth stemmed mainly from his executive roles and shareholdings in Naftasib, a Russian oil supply and processing company. He was granted residency under the $10 million-plus investment category in May 2013 and his companies employ 140 full and part-time staff.
He has given $2 million to Team New Zealand, including $500,000 after San Francisco, with Waiwera Water on top. "We used something like quarter of a million bottles in [the last] campaign, with the water served at hospitality on top of that," says Team NZ boss Grant Dalton.
Thalia was berthed alongside Team NZ's San Francisco base in return. "He's a generous guy. He's worked hard on his English, he has tried to integrate."
Avantidrome trustee Rob Waddell also vouches for Khimich's generosity and determination for New Zealand to succeed. Acquaintances talk of a magnetic personality who's good company, despite his lack of English. He leased a corporate box at Eden Park to entertain clients at the 2011 Rugby World Cup. At that year's Halberg Awards, he stumped up $50,000 to win a replica of Sir Murray Halberg's Olympic gold medal winning singlet, the Herald on Sunday reported.
But his Waiwera businesses have not only struggled to match his ambitions for them, there have been fallouts with business partners, payment problems with suppliers and contractors and confidential settlements with several former staff.
Khimich's journey to Waiwera famously began at Kermadec restaurant on Auckland's waterfront back in 2008 where he sampled Waiwera Artesian Water for the first time. When he returned the next day, they had run out due to supply problems. He despatched a marine industry acquaintance, Alex Kirichuk, to Waiwera with a proposition.
An investor of Khimich's means, touting potential access to Eastern European markets, held obvious appeal for John Brown, the tourism entrepreneur who made his name with the Mt Hutt Skifield and Victoria Park Markets in the 1980s. He'd bought the popular Waiwera thermal pools in 1989, upgraded the place and revived the bottled water operation within the site. Waiwera Artesian Water was relaunched with an award-winning bottle design and marketing which emphasised the age of the water (carbon dated to 15,000 years) and the town's mineral spa heritage.
Khimich's Waiwera investments: Lying fallow or up for sale.
John Brown also expanded his landholdings but several ambitious schemes to make Waiwera an international resort came and went. The last - a hotel, spa, apartments and conference centre - fell over when developers McEwan Group collapsed, forcing him to sell down his holdings, including the land beneath the hot pools.
Khimich first took a 60 per cent stake in Waiwera Water and the hot pools before gaining full control. He kept John Brown on as a consultant advisor for a time before serving him a trespass notice.
The notice was withdrawn and Khimich entered a sale and purchase agreement to buy the nearby Waiwera Holiday Park off John Brown, conditional on OIO approval. Khimich hoped the planned 5-star resort would be a catalyst for a "master plan" redevelopment putting Waiwera on the international spa resort map, the application documents state.
But after finally gaining OIO clearance, he pulled out while the approval was with Government ministers for sign-off (see Monday's Herald for more). The land was sold in a mortgagee sale this year and John Brown is threatening a lawsuit. He did not wish to debate the issues through the media.
'We are at war'
Another former business partner, Alex Kirichuk, is more forthcoming about his difficulties with Khimich: "He is Russian, I am Ukrainian. We were friends, now we are at war."
Kirichuk was a co-director in several Khimich entities but worked mainly on the organic winery and spirits ventures. But in May last year he and his small team were ordered from the premises and police were called when he tried to return. He was also sacked as a director. But by year's end the pair had patched up their differences and Kirichuk was reinstated as a director in February. Two months later, he resigned.
Kirichuk claims he is owed wages and equipment and that some trade marks on the spirits are his. He also claims Khimich reneged on an agreement to transfer a 25.1 per cent shareholding in the Waiwera Organic Winery; Khimich argues the agreement is void because the winery never eventuated. Khimich told the Weekend Herald it was a private commercial matter.
The Waiwera businesses also experienced high staff turnover and reputational problems in the first years after John Brown departed, documents show. Former director of branding and communications Fraser Brown (John Brown's son) says Khimich brought in Russian staff and a culture clash resulted.
Taste for the extravagant: Khimich's superyacht, Thalia.
"It's chalk and cheese - we could not be more different," Fraser Brown says. "We are so naive and open here - the Russians ... don't trust anything you say."
He says he also came to question Khimich's commitment to growing the businesses.
Long-serving financial controller Roger Mackereth took an unfair dismissal case to the Employment Relations Authority but after several months a confidential settlement was negotiated and the proceedings removed from the authority's records. Several others who left later signed confidentiality agreements.
Suppliers and contractors complained of long waits and disputes over payment. One firm engaged for consultancy work on a potential upgrade of the bottling plant launched legal action before reaching a confidential settlement.
Talks with potential partners in the bottled water business fizzled out, although some report a recent revival of interest.
Former hot pools general manager Dixon McIver, who resigned in December 2011, says he grew disillusioned with where the business was heading. Khimich seemed uninterested in the pools - "I don't think he saw it as the sort of resort he wanted to own".
"He started investing in areas not relevant to Waiwera - buying relationships more than anything else. He's from a country where money and connections rule whereas here people rule. It's a completely different business mindset."
Waiwera Group CEO Lloyd Brown (no relation to John Brown), who joined the business in February, says the staffing and cashflow issues are historic. The group works to a 60-day payment policy, longer than New Zealand firms are used to. "The team we have now in the water business is extremely strong and the goal is to transition that [into other businesses]."
Responding to Weekend Herald questions from Moscow, Khimich says he remains deeply committed to New Zealand and Waiwera. "I continue to strive, on a daily basis, to make a positive contribution."
He is expected back before Christmas to attend to business. "My long term goal is to build both Waiwera Water and Spirits into globally recognised brands.
"Determination, a great team, and my passion for Waiwera and New Zealand make for an exciting future."
Plans to expand into foreign markets have been hamstrung by the limitations of the hot pools site, which include an Auckland Council limit on the daily water take. But a new, much higher, water allocation consent has been on hold for more than a year while the company negotiates with iwi and neighbouring bore users, the council says.
There have been image blows such as the rejection of a shipment of 10 containers of water to the United Arab Emirates, allegedly because of excess boron levels. The company says independent tests prove its water exceeds international quality requirements and it is pursuing payment with the Dubai firm involved.
The company lost local market share when Countdown supermarkets owner Progressive decided to no longer stock its staple 1.5l still water. Khimich says the company made a strategic decision to not partake in the high volume/low price segment but to focus on premium products.
Khimich has discussed partnerships to increase production with several other bottled water companies, despite the risk of diluting the Waiwera brand. In 2011, he announced to staff a deal with Putaruru-based NZ Quality Waters. A memorandum of understanding had been signed but the deal did not proceed.
"There was no animosity, it just didn't work out," says NZ Quality Waters boss Ian Riley. He said discussions had recently been revived.
Others approached include Putaruru-based Aquasplash and Otakiri Springs near Whakatane. Nothing eventuated and both companies signed confidentiality agreements.
CEO Lloyd Brown says Waiwera Water is poised to expand in the United States and China - "we have a team in Honolulu at the moment looking to double orders [to the US} from 120 to 240 containers a year ...".
Khimich says recent new markets are Taiwan and Korea. "Our established markets - USA, China and Russia - are performing well above our expectations. Our group exports are up on last year which we expect to continue as we bed down certain initiatives undertaken recently."
Waiwera Organic Winery
When locals opposed a bottling plant in Upper Waiwera Rd, former business partner Alex Kirichuk persuaded Khimich to develop a vineyard, winery and distillery on the site instead. Plans submitted to the Overseas Investment Office indicated a staged development costing $6 million.
Lloyd Brown says the land was later found to be unsuitable for the grape variety needed for the medicinal wine. Yet Khimich told the OIO a wine expert had assessed 65 per cent of the property as "highly suitable" for viticulture.
While the OIO application proceeded, Kirichuk began producing "trial" batches of organic vodka, gin and rum in an industrial area at Silverdale. The spirits are pitched at the premium market selling for over $100 in specially-designed bottles. Various infused vodkas and the Mahurangi Gin have picked up awards at fairs in San Francisco, London and New York.
But apart from a container-load of vodka shipped to Russia in November 2013, production has been limited. Lloyd Brown says the plant is a pilot and production constraints include compliance issues which are being addressed.
Brown says prospects for the spirits business are bright. "Considering the medals that we've won we are very excited. There's a lot of weight placed internationally on companies that win these prestigious competitions."
Khimich says efforts to launch the spirits range in the United States are underway and a sales trip to China is due next month.