Rothschild and Deripaska’s big plan

LAST UPDATED AT 10:00 ON Thu 23 Oct 2008

Many have wondered exactly what the relationship is between Nat Rothschild (pictured) and the Russian oligarch Oleg Deripaska. Today's Daily Telegraph explains all: the pair are behind a £200m playboys' playground that is to be built in Tivat, a derelict port and former Yugoslav naval base in the tiny former Communist country of Montenegro, which they aim to transform into the Monaco of the Balkans.

A group of high-profile investors, including Rothschild's father Jacob, have joined with Deripaska, Russia's richest man, to invest in the scheme to extend the harbour to offer moorings for up to 800 luxury yachts, hotels, restaurants and shops. There will be 1,000 flats where crews can make their homes and the Four Seasons is building its first Mediterranean resort to open in two years time.

Rothschild, 37, who has extensive business interests across Eastern Europe, has targeted Montenegro because of its generous tax arrangements. Income tax is to be reduced to nine per cent, there is no capital gains tax, and the corporate rate is also nine per cent. The venture hopes to return Montenegro to what it was in the 1950s and 1960s when it played host to the likes of Elizabeth Taylor, Sophia Loren and Kirk Douglas who holidayed each year on the resort island of Sveti Stefan.

To some extent they are riding a wave: since the break-up of Yugoslavia and political turmoil in which Montenegro gained independence, the Rolling Stones have performed on one of Sveti Stefan's beaches and next month the country will stage part of Madonna's 50th birthday tour. Michael Douglas and Catherine Zeta-Jones were recently seen house-hunting in Montenegro.

Meanwhile, it looks like Rothschild is about to take the heat off his old friend George Osborne. Since writing to the Times and accusing him and the Tory Party's chief fundraiser Andrew Feldman of trying to solicit a donation of £50,000 from Deripaska, an act which is illegal under UK electoral law, the shadow chancellor has been under fire. Yesterday Gordon Brown demanded an inquiry into the affair. However, according to the Guardian, Rothschild only intended to give Osborne "a slap on the wrist" for breaching etiquette by talking about Lord (Peter) Mandelson's meeting with Deripaska in Corfu in the summer. This, he feels, was a private matter and should not have been retailed as gossip.

But Rothschild feels things have got out of hand and despite saying that he would produce a witness to support his side of the story, it now seems he's prepared to let the matter drop fearing that any further fuss could damage his family's relationship with the Tory party. But the offer is conditional on Osborne not disputing the version of events he set out in his now famous letter to the Times. Warns a source close to Rothschild: "Nat does not want to finish George off but it is really down to the Tories - if they carry on rubbishing him and his friendship with Peter Mandelson then he will have no option but to act." · 

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