The New Tsar (53 page)

After Rosneft acquired the lion’s share of Yukos, the contracts to trade much of its oil shifted to Gennady Timchenko, the trader who first made deals with Putin in the 1990s. When Arkady Rotenberg, who along with his brother Boris had learned judo at Putin’s side when they were teenagers in the 1960s, formed a judo club in Petersburg in 1998 called Yawara-Neva; Timchenko provided sponsorship, and Putin became the club’s honorary president. The club created a “judocracy” that would shape Putin’s political leadership as much as the KGB did.
⁴³
Vasily Shestakov, another judoka and founder of the club who had promised to hire Putin as a coach in 1996, entered politics and published books and videos on the sport, including one ostensibly co-authored by Putin.

When, on the eve of his inauguration in 2000, Putin established a state company to consolidate dozens of vodka distilleries in which the government still had a controlling interest, he turned to the judocracy to control it. He put Arkady Rotenberg in charge of what was called Rosspiritprom. In a country with a taste for the hard stuff, the enterprise would grow into a multimillion-dollar business, controlling nearly half the country’s alcohol market, benefiting from new government regulations and raids on private rivals.
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Rotenberg and his brother Boris parlayed the profits of Russia’s national drink into their own bank, SMP Bank, which then began investing in pipeline construction of exactly the sort Putin was negotiating with the likes of Gerhard Schröder.

Unlike the get-rich-quick schemes of the 1990s privatizations, the accumulation of assets by Putin’s friends was so slow and incremental that its significance only became clear much later. Putin had enabled his circle of friends to rise to the heights of the country’s economy, enriching them while ensuring they would control the sectors of the economy—from natural resources to the media—that he considered vital to the nation’s security. “He doesn’t take the St. Petersburg boys to work with him because of their pretty eyes, but because he trusts people who are tried and true,” Putin’s first judo trainer, Anatoly Rakhlin, told
Izvestiya
in 2007.

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O
n December 26, 2005, Putin gathered his advisers for a special meeting inside the Kremlin to discuss, among other issues, how to divide up the proceeds of Rosneft’s extraordinary growth. Around the long oval
table were the men who had been with him since Petersburg: Aleksandr Medvedev, Aleksei Kudrin, German Gref, Igor Sechin. It was an unusual meeting, smaller than a cabinet meeting but larger than the regular meetings devoted to economic matters. Andrei Illarionov, already demoted once, was also there, but by then he felt increasingly uncomfortable with the direction of the Kremlin’s economic policy. Illarionov, trained as an economist, had been a pugnacious, strong-tempered adviser to Russian governments since the collapse of the Soviet Union. A libertarian and a free-marketer, he had never shied away from stating his mind. The first time he met with Putin, in February 2000, while the latter was still acting president, an aide passed a note informing Putin that Russian forces in Chechnya had captured the town of Shatoi, the last stronghold then still occupied by the rebels. He was ebullient, and when Illarionov responded by telling him the war was illegal and destructive for Russia, they argued for an hour before Putin icily cut him off. From that point on, he declared, they would never again discuss Chechnya—only economic matters.
⁴⁵
For the first term of Putin’s presidency, Illarionov felt vindicated by the economic course the country was taking. He endorsed the decisions Putin took to embrace the flat tax of 13 percent, pay off the country’s debt, and create a stability fund of reserves, which had grown unexpectedly flush. The Yukos affair signaled something different, and he said as much. He now found that Putin no longer heeded his advice, first demoting him then steadily shrinking his staff in the Kremlin. In an interview with the Russian opposition newspaper
The New Times
, Illarionov said that Putin had divided those around him into distinct groups. One he called the “economics group,” which involved his advisers on all matters involving the economy. The other group involved “business people,” from which official advisers were generally excluded. It was with those people, he said, that Putin “would establish control over property and financial flows.”
⁴⁶
Just as Putin declared they would no longer discuss Chechnya, he no longer seemed interested in discussing the plans for Rosneft with Illarianov.

The meeting to discuss the company’s initial public offering—on the London Stock Exchange and Russia’s two exchanges—was the first Illarionov had been invited to on the matter, but it soon became clear to him that the plans were already well advanced. At this meeting Igor Sechin presented the proposal to raise $12 billion in capital by selling 13 percent of the company’s shares and then using the proceeds to pay off debt and invest in new projects. One by one Putin’s aides then endorsed the
idea. “It’s fine,” Gref said. Medvedev said he had verified the legality of the deal. When it came time for Illarionov to speak, though, he objected. If the state were going to sell a share of its largest oil company, he argued, should not the proceeds return to the state’s budget? Putin pushed back his chair, his face reddening. Illarionov knew that he had made him uncomfortable by pointing out the political risk involved. It was one thing to prosecute Khodorkovsky and seize Yukos’s assets—Russians had cheered for that—but another altogether to not share the profits with the ultimate shareholders, the Russian people. Illarionov now understood that the matter had already been decided by everyone in the room. Nobody joined his argument. They stared silently at the table. Even worse, he told them, not all the proceeds were intended to shore up or expand Rosneft: under the proposal being ratified that day, $1.5 billion of the sale was earmarked for unspecified bonuses for Rosneft’s management, presumably the company’s executive and its board members, including Igor Sechin. This seemed to surprise Putin. He went pale and pulled his chair back to the table.

“Igor Ivanovich,” Putin said, turning to Sechin, “what is this?”

Sechin bolted upright, standing like a conscript soldier in front of an angry officer, stammering Putin’s name, according to Illarionov. He did not or could not explain the bonuses, and Putin simply thanked Illarionov for his contribution to the discussion. Illarionov, who believed that Putin had not known of the bonuses, resigned the next day, publicly criticizing the direction in which Putin was taking the country. “The state has become, essentially, a corporate enterprise that the nominal owners, Russian citizens, no longer control,” he wrote in a blistering editorial in
Kommersant
.
⁴⁷
Illarionov’s opposition served to delay the IPO, as Sechin and Putin debated the terms and the timing, but not for long.

When the proposal was announced in early 2006, Rosneft said it hoped to raise $20 billion, though it later reduced its target to $10 billion. The government announced with fanfare that it would put individual shares up for retail sale through the state bank, Sberbank, and others, trying to portray this privatization as a benefit for ordinary Russians, who would also have the chance to share in the country’s energy boom. The main focus, though, was on enlisting international energy companies, including BP, Petronas, and China’s giant CNPC, who were enticed by the prospect of a new foothold in Russia’s energy market, if only as minority shareholders. When the results of the offering seemed low, other Russian oligarchs, including Roman Abramovich, stepped in
with large purchases, presumably at the prompting of the Kremlin, so that Rosneft would hit its target.
⁴⁸

The offering was as controversial as the Yukos affair—and a risk for Putin personally since it amounted to a test of the brand of capitalism he was managing. To float shares in London required a full disclosure of the risks to investors. Rosneft’s disclosure in fact acknowledged the crime and corruption in Russia and the likelihood that Yukos-related lawsuits would hound the company into the distant future. It also made it clear that Kremlin, Inc. remained the ultimate arbiter of the company’s fate. “The Russian government, whose interests may not coincide with those of other shareholders, controls Rosneft and may cause Rosneft to engage in business practices that do not maximize shareholder value,” the prospectus acknowledged.
⁴⁹

Whether the bonuses Illarionov criticized were paid was never made public, and the interest of institutional investors remained lukewarm, but the offering was the fifth largest in history. It raised $10.7 billion, and at the selling price of the shares, Rosneft was valued at nearly $80 billion. The offering took place, not by coincidence, on the eve of the G8 summit, which was being held for the first time in Petersburg with Putin as the host. The Kremlin prepared an ambitious agenda that included Russia’s place as the guarantor of energy security, despite the conflict with Ukraine and, later, Georgia and Belarus over natural gas. Rosneft’s rise proved that Russia had righted itself again, and in the run-up to the summit, Putin exuded a confidence, even a swagger, that had appeared for a time to have been tempered by the horrors of Beslan, the contagion of popular uprisings, and the rising criticism of Russia’s course.

“The market,” Sechin declared in the company’s next annual report, “has spoken.”
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CHAPTER 17

Poison

A
leksandr Litvinenko was already dead when he publicly accused Vladimir Putin of having killed him. A radioactive isotope had slowly but inexorably destroyed his body over three weeks. It was as if “a little, tiny nuclear bomb” had gone off inside him.
¹
His doctors, who initially suspected that he had eaten tainted sushi, would not pinpoint the cause of his mysterious illness until it was too late: a dose of the element polonium-210. He had ingested it, it seemed, in the wood-paneled bar of the Mayfair Millennium Hotel in London on November 1, 2006, after briefly meeting a cadre of visiting Russians he hoped to entice into his new business enterprise: trading information on Russian power and business, which had taken on new significance now that Putin commanded the center of it. When he got home that evening, he began to feel ill. Three days later he was in the hospital, where he agonizingly withered away. He died the night of November 23, only forty-three years old. The next morning, a friend and colleague, Alex Goldfarb, emerged before a circle of journalists and television cameras and read a statement Litvinenko had dictated in his dying days.

“I can distinctly hear the beatings of the wings of the angel of death,” it went, in improbably elegant English, which Litvinenko had barely learned to speak during his years in exile. “I may be able to give him the slip, but I have to say my legs do not run as fast as I would like. I think, therefore, that this may be the time to say one or two things to the person responsible for my illness. You may succeed in silencing men, but that silence comes at a price. You have shown yourself to be as barbaric and ruthless as your most hostile critics have claimed. You have shown you have no respect for life, liberty or any civilized value. You have shown yourself to be unworthy of your office, to be unworthy of the trust of civilized men and women. You may succeed in silencing one
man, but a howl of protest from around the world will reverberate, Mr. Putin, in your ears for the rest of your life.”
²

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L
itvinenko had not settled into a quiet exile after making a furtive escape from Russia in 2000, hounded by the agency he betrayed when he went public with his accusations at the surreal press conference in 1998, before the dawn of the Putin era. He had never fully integrated into English life, remaining within the insular world of “Londongrad,” populated with exiles, émigrés, and itinerant tycoons. He did not mingle socially with the rich Russians then flooding London with their wealth—his means were far too modest—but rather with the shadowy, conspiratorial circles of Putin’s fiercest critics. Chief among them was Boris Berezovsky, who continued to contrive plots to discredit the man he blamed for his fall from political favor and wealth. With Berezovsky’s financing and inspiration, Litvinenko wrote a book with Yuri Felshtinsky, an émigré historian based in the United States, which made the case that Putin’s FSB had been behind the bombings in 1999 that propelled Putin to power. They called it
The FSB Blows Up Russia
, and it was tendentious from its opening lines: “No one but a total madman could have wished to drag Russia into any kind of war, let alone a war in the North Caucasus. As if Afghanistan had never happened.”
³
A film version followed, shown discreetly in Moscow and extensively abroad, a campaign Berezovsky financed as part of his vengeful mission to bring Putin down. Litvinenko followed up with a second book,
Lubyanka Criminal Group
, portraying the KGB’s successor as little more than a mafia or terrorist organization, engaged in corruption and crime. Litvinenko was burning the bridges to his past, to his own career in the security services, with a recklessness that at times verged on madness. He became consumed with Putin and his rule, trading information with other KGB veterans and with intelligence agents in Britain and Spain, and possibly elsewhere. He was eager to pursue any morsel of information that he heard and willing to believe in vast conspiracies, which he knitted out of facts, rumors, and a furious imagination.