The Oligarchs (93 page)
Authors: David Hoffman
9
Priobskoye field, discovered in 1992, occupies an area of 5,466 square kilometers along the Ob River, one hundred kilometers west of Nefteyugansk, with about 4.5 billion barrels of oil. Yuganskneftegaz has a license for about 72 percent of the field, the Northern Territory, according to a Yukos press release, October 28, 1999, on passage of production-sharing legislation for the field.
Priobskoye field, discovered in 1992, occupies an area of 5,466 square kilometers along the Ob River, one hundred kilometers west of Nefteyugansk, with about 4.5 billion barrels of oil. Yuganskneftegaz has a license for about 72 percent of the field, the Northern Territory, according to a Yukos press release, October 28, 1999, on passage of production-sharing legislation for the field.
10
Stephen O'Sullivan,
Russian Oil: Financial Analysis,
MC Securities Ltd., London, February 26, 1997; “Yuganskneftegaz,” MN-Fund, Moscow, undated;
Annual Report,
Yuganskneftegaz, May 1997.
Stephen O'Sullivan,
Russian Oil: Financial Analysis,
MC Securities Ltd., London, February 26, 1997; “Yuganskneftegaz,” MN-Fund, Moscow, undated;
Annual Report,
Yuganskneftegaz, May 1997.
12
One important reason why foreign investors bought stock in many of these oil extraction companies was availability. In the early 1990s it was not yet possible to buy shares in the big holding companies, which were just being created. Investors also thought the oil field extraction company stocks were cheap.
One important reason why foreign investors bought stock in many of these oil extraction companies was availability. In the early 1990s it was not yet possible to buy shares in the big holding companies, which were just being created. Investors also thought the oil field extraction company stocks were cheap.
13
Dart bought other oil field stocks as well, but these two were the core of Yukos.
Dart bought other oil field stocks as well, but these two were the core of Yukos.
14
Alexei Mitrofanov, telephone interview by author, October 29, 1998.
Alexei Mitrofanov, telephone interview by author, October 29, 1998.
15
Nina Yermakova and other teachers at School 58, interview by author, November 12, 1998.
Nina Yermakova and other teachers at School 58, interview by author, November 12, 1998.
16
Oleg Churilov, interview by author, March 1, 1999.
Oleg Churilov, interview by author, March 1, 1999.
17
Oleg Klimov, interview by author, February 25, 1999.
Oleg Klimov, interview by author, February 25, 1999.
18
Norilsk was a major player in global metals markets too. By 2001 Norilsk was producing 20 percent of the world's nickel, 20 percent of the platinum, and 40 percent of the palladium, according to company estimates.
Norilsk was a major player in global metals markets too. By 2001 Norilsk was producing 20 percent of the world's nickel, 20 percent of the platinum, and 40 percent of the palladium, according to company estimates.
19
Dun & Bradstreet Russia,
Unexim Group: Report on Financial-Industrial Group,
updated May 1997; Thompson Bankwatch,
Unexim Bank: Company Report,
September 27, 1996; Uneximbank annual reports and publications. The $300 million is Potanin's own estimate. The letter urging clients to join Potanin was quoted in
Kommersant Weekly
, June 1, 1992, and in
Kommersant Daily,
October 15, 1992, by reporter Dmitry Simonov, and again by Yaroslav Skvortsov and Mikhail Loginov in
Kommersant Daily
, November 16, 1995.
Dun & Bradstreet Russia,
Unexim Group: Report on Financial-Industrial Group,
updated May 1997; Thompson Bankwatch,
Unexim Bank: Company Report,
September 27, 1996; Uneximbank annual reports and publications. The $300 million is Potanin's own estimate. The letter urging clients to join Potanin was quoted in
Kommersant Weekly
, June 1, 1992, and in
Kommersant Daily,
October 15, 1992, by reporter Dmitry Simonov, and again by Yaroslav Skvortsov and Mikhail Loginov in
Kommersant Daily
, November 16, 1995.
20
Thomson Bankwatch,
Unexim Bank: Company Report,
September 27, 1996. The bank's assets reached $3 billion by the end of 1995.
Thomson Bankwatch,
Unexim Bank: Company Report,
September 27, 1996. The bank's assets reached $3 billion by the end of 1995.
21
Boris Jordan, interview by author, October 1, 2000; Steven Jennings, interview by author, March 3, 2000.
Boris Jordan, interview by author, October 1, 2000; Steven Jennings, interview by author, March 3, 2000.
23
Dmitri Vasiliev, interview by author, September 16, 1999.
Dmitri Vasiliev, interview by author, September 16, 1999.
25
Sergei Belyaev, interview by author, October 18, 1999.
Sergei Belyaev, interview by author, October 18, 1999.
26
Chubais, interview by author, May 13, 2000.
Chubais, interview by author, May 13, 2000.
27
Vladmir Potanin, interview by Patricia Kranz of
Business Week,
September 8, 1997. Her article on Potanin, “Russia's Most Powerful Man,” appeared in
Business Week,
November 24, 1997.
Vladmir Potanin, interview by Patricia Kranz of
Business Week,
September 8, 1997. Her article on Potanin, “Russia's Most Powerful Man,” appeared in
Business Week,
November 24, 1997.
28
Paul Bograd, interview by author, March 26, 1999.
Paul Bograd, interview by author, March 26, 1999.
29
Khodorkovsky, interview by author, June 19, 2000.
Khodorkovsky, interview by author, June 19, 2000.
30
Gaidar, interview by author, September 29, 2000.
Gaidar, interview by author, September 29, 2000.
31
William Flemming, “Business-State Relations in Post-Soviet Russia: The Politics of Second Phase Privatization, 1995â1997” (M.Phil. thesis, Oxford University, 1998). I am indebted to Flemming for his excellent research and thoughtful assistance on loans for shares, especially the important link with the 1996 election.
William Flemming, “Business-State Relations in Post-Soviet Russia: The Politics of Second Phase Privatization, 1995â1997” (M.Phil. thesis, Oxford University, 1998). I am indebted to Flemming for his excellent research and thoughtful assistance on loans for shares, especially the important link with the 1996 election.
32
Transition Report 1999
(London: European Bank for Reconstruction and Development), chap. 6, “Governance in Transition,” p. 115.
Transition Report 1999
(London: European Bank for Reconstruction and Development), chap. 6, “Governance in Transition,” p. 115.
33
Chubais later acknowledged, after the auctions were nearly over, that allowing the auctioneer to bid on the properties was a mistake. “Not for legal but rather for ethical reasons it can be said we made a mistake here,” he told journalists December 15, 1995, promising it would not happen again. But in fact it did.
Chubais later acknowledged, after the auctions were nearly over, that allowing the auctioneer to bid on the properties was a mistake. “Not for legal but rather for ethical reasons it can be said we made a mistake here,” he told journalists December 15, 1995, promising it would not happen again. But in fact it did.
35
Alexander Vorobyev, “Amnesty's Effect on Corruption Case Prosecution Noted,”
Rossiyskaya Gazeta
, January 18, 2000. Vorobyev was press secretary of the Interior Ministry unit, which investigated the deals and said the probe was dropped at the end of 1999 because of an amnesty statute approved by parliament.
Alexander Vorobyev, “Amnesty's Effect on Corruption Case Prosecution Noted,”
Rossiyskaya Gazeta
, January 18, 2000. Vorobyev was press secretary of the Interior Ministry unit, which investigated the deals and said the probe was dropped at the end of 1999 because of an amnesty statute approved by parliament.
36
The Khodorkovsky lieutenant told me this story.
The Khodorkovsky lieutenant told me this story.
37
The bankers, in a statement published November 26, accused Menatep of reneging on its earlier promised investments. They said Khodorkovsky won dozens of auctions with promises to invest $600 million in the factories that he took over but then failed to invest. “Practically not a single obligation was fulfilled by the bank,” the bankers declared, mentioning Khodorkovsky's voracious appetite for factories: phosphates, aluminum, food, and steel, among others. Similar charges were made against Khodorkovsky in later years as well, that he scooped up companies at investment tenders without making the promised investments. Replying on December 10 in an interview published in
Kommersant Daily,
Khodorkovsky said he had not given absolute guarantees for the privatization tenders but instead had issued letters
promising
to make the other investments. A footnote in Menatep's 1995 audit said the banking group “has participated throughout 1995 in investment tenders and loan-for-shares auctions which resulted in drawing comfort letters with an expected value of investments up to Rbm 1,047,359. The comfort letters do not contain any obligation.”
The bankers, in a statement published November 26, accused Menatep of reneging on its earlier promised investments. They said Khodorkovsky won dozens of auctions with promises to invest $600 million in the factories that he took over but then failed to invest. “Practically not a single obligation was fulfilled by the bank,” the bankers declared, mentioning Khodorkovsky's voracious appetite for factories: phosphates, aluminum, food, and steel, among others. Similar charges were made against Khodorkovsky in later years as well, that he scooped up companies at investment tenders without making the promised investments. Replying on December 10 in an interview published in
Kommersant Daily,
Khodorkovsky said he had not given absolute guarantees for the privatization tenders but instead had issued letters
promising
to make the other investments. A footnote in Menatep's 1995 audit said the banking group “has participated throughout 1995 in investment tenders and loan-for-shares auctions which resulted in drawing comfort letters with an expected value of investments up to Rbm 1,047,359. The comfort letters do not contain any obligation.”
38
Chubais said in his December 15 press conference, “I wouldn't like to offend anybody, but some banks are known to have chosen such tactics for themselves: they needed these auctions, in which they had no funds to take part, in order to raise a hue and cry over rejection of their applications and then, relying on those scandals, to try and negotiate with the winners in a bid to get their share. Unfortunately, these tactics are quite well known and some banks pursued them in exactly this way. Such things did happen.”
Chubais said in his December 15 press conference, “I wouldn't like to offend anybody, but some banks are known to have chosen such tactics for themselves: they needed these auctions, in which they had no funds to take part, in order to raise a hue and cry over rejection of their applications and then, relying on those scandals, to try and negotiate with the winners in a bid to get their share. Unfortunately, these tactics are quite well known and some banks pursued them in exactly this way. Such things did happen.”
39
Menatep at the time held a 12 percent take in Smolensky's bank, the audit shows.
Menatep at the time held a 12 percent take in Smolensky's bank, the audit shows.
40
Chrystia Freeland, “Bidders Claim Exclusion from Russian Oil Sell-off,”
Financial
Times
, November 1, 1995, p. 3, and Freeland, “War of Words in the Reform Club: Protests are Growing over Russia's Privatization Program,”
Financial Times
, December 2, 1995, p. 7.
Chrystia Freeland, “Bidders Claim Exclusion from Russian Oil Sell-off,”
Financial
Times
, November 1, 1995, p. 3, and Freeland, “War of Words in the Reform Club: Protests are Growing over Russia's Privatization Program,”
Financial Times
, December 2, 1995, p. 7.
41
Yuli Dubov, interview by author, May 3, 2000.
Yuli Dubov, interview by author, May 3, 2000.
43
Leonid Krutalov, “Alexander Korzhakov: Sleeping with the Enemy,”
Moskovsky Komsomolets
, November 3, 1999, p. 2.
Leonid Krutalov, “Alexander Korzhakov: Sleeping with the Enemy,”
Moskovsky Komsomolets
, November 3, 1999, p. 2.
44
Berezovsky, interview by author, February 28, 2001.
Berezovsky, interview by author, February 28, 2001.
45
Berezovsky disclosed this in an interview published in
Nezavisimaya Gazeta
, February 3, 1998, p. 1.
Berezovsky disclosed this in an interview published in
Nezavisimaya Gazeta
, February 3, 1998, p. 1.
46
Smolensky, who eschewed Russian industry, told me he knew of Potanin's efforts to organize loans for shares, but he didn't want any factories. He recalled that Potanin had organized meetings at his bank to choose the properties that would be included in loans for shares, but “I didn't visit a single time.” However, he participated in raising the money for Berezovsky's investment in Sibneft, which he said was not budget money from the state but “real money.”
Smolensky, who eschewed Russian industry, told me he knew of Potanin's efforts to organize loans for shares, but he didn't want any factories. He recalled that Potanin had organized meetings at his bank to choose the properties that would be included in loans for shares, but “I didn't visit a single time.” However, he participated in raising the money for Berezovsky's investment in Sibneft, which he said was not budget money from the state but “real money.”
48
“Russia's Financial-Industrial Elite,” a cable by Waller, May 26, 1995; Waller, multiple interviews by author, 1996â2000.
“Russia's Financial-Industrial Elite,” a cable by Waller, May 26, 1995; Waller, multiple interviews by author, 1996â2000.
49
Thomas E. Graham, interview by author, June 22, 2000. Graham said that he originally wrote the essay for publication by the Moscow Center of the Carnegie Endowment for International Peace, but the text languished there and was picked up by Tretyakov instead.
Thomas E. Graham, interview by author, June 22, 2000. Graham said that he originally wrote the essay for publication by the Moscow Center of the Carnegie Endowment for International Peace, but the text languished there and was picked up by Tretyakov instead.
50
Gusinsky took no chances. He came back just as President Clinton was visiting for a summit with Yeltsin to celebrate the fiftieth anniversary of the end of World War II. Gusinsky figured that no one would cause trouble while the U.S. president was in town, and he was right.
SAVING BORIS YELTSINGusinsky took no chances. He came back just as President Clinton was visiting for a summit with Yeltsin to celebrate the fiftieth anniversary of the end of World War II. Gusinsky figured that no one would cause trouble while the U.S. president was in town, and he was right.
1
Mikhail Berger, “Two Zyuganovs: One for West, One for Home?”
Izvestiya
, February 6, 1996, pp. 1â2; Berger, interview by author, January 17, 2001.
Mikhail Berger, “Two Zyuganovs: One for West, One for Home?”
Izvestiya
, February 6, 1996, pp. 1â2; Berger, interview by author, January 17, 2001.
2
Anatoly Chubais, interview by author, May 13, 2000.
Anatoly Chubais, interview by author, May 13, 2000.
3
Arkady Yevstafiev, interview by author, March 7, 2000.
Arkady Yevstafiev, interview by author, March 7, 2000.
4
Chubais press conference, February 5, 1996.
Chubais press conference, February 5, 1996.
5
Vladimir Gusinsky, interview by author, September 22, 2000.
Vladimir Gusinsky, interview by author, September 22, 2000.
6
Boris Berezovsky, interview by author, July 5, 1996.
Boris Berezovsky, interview by author, July 5, 1996.
7
Natalya Gevorkyan, “Young Russian Capital Helped the President Win the Election,”
Kommersant Daily
, June 17, 1997, p. 4.
Natalya Gevorkyan, “Young Russian Capital Helped the President Win the Election,”
Kommersant Daily
, June 17, 1997, p. 4.
9
Berezovsky, interview by author, February 28, 2001.
Berezovsky, interview by author, February 28, 2001.
10
Berger told me that the two men discussed hiring Chubais for the campaign at that moment.
Berger told me that the two men discussed hiring Chubais for the campaign at that moment.
11
Chubais discussed the $5 million arrangement with a group of reporters on December 2, 1997. Earlier news reports stated that Smolensky gave an interest-free, five-year loan to Chubais of 14 billion rubles, then worth about $3 million, which was paid over three installments in March 1996 to the Chubais fund. This may have been just part of the sum which the tycoons paid Chubais. The newspaper
Izvestia
published the story of the $3 million interest-free loan on July 1, 1997, and Smolensky told me a similar story in a 1997 interview. Chubais, without mentioning the precise total, also said in a response to
Izvestia
on July 5, 1997, that he had created the center. “The foundation indeed conducted financial activity: we received an interest-free loanâwhich is absolutely normal in relations between social organizations, of which the fund was one, and commercial structures, both for Russia and any democratic country.” Chubais said he paid 515 million rubles, or about $95,000, in taxes on his income of 1.7 billion rubles or $300,000 which he said was earned between his firing in January and his return to government service when appointed chief of Yeltsin's administration after the election. “The major part came from my truly well paid lectures and consulting services and for my work in the Center for Protection of Private Property, from which I came to the presidential administration.”
Interfax
, January 21, 1997; Associated Press, “Lawmakers Accuse Chubais of Violating Civil Service Law,” February 5, 1997.
Chubais discussed the $5 million arrangement with a group of reporters on December 2, 1997. Earlier news reports stated that Smolensky gave an interest-free, five-year loan to Chubais of 14 billion rubles, then worth about $3 million, which was paid over three installments in March 1996 to the Chubais fund. This may have been just part of the sum which the tycoons paid Chubais. The newspaper
Izvestia
published the story of the $3 million interest-free loan on July 1, 1997, and Smolensky told me a similar story in a 1997 interview. Chubais, without mentioning the precise total, also said in a response to
Izvestia
on July 5, 1997, that he had created the center. “The foundation indeed conducted financial activity: we received an interest-free loanâwhich is absolutely normal in relations between social organizations, of which the fund was one, and commercial structures, both for Russia and any democratic country.” Chubais said he paid 515 million rubles, or about $95,000, in taxes on his income of 1.7 billion rubles or $300,000 which he said was earned between his firing in January and his return to government service when appointed chief of Yeltsin's administration after the election. “The major part came from my truly well paid lectures and consulting services and for my work in the Center for Protection of Private Property, from which I came to the presidential administration.”
Interfax
, January 21, 1997; Associated Press, “Lawmakers Accuse Chubais of Violating Civil Service Law,” February 5, 1997.
12
Chubais, interview by author, May 13, 2000.
Chubais, interview by author, May 13, 2000.
14
Lee Hockstader and David Hoffman, “Yeltsin Campaign Rose from Tears to Triumph,”
Washington Post
, July 7, 1996, p. 1.
Lee Hockstader and David Hoffman, “Yeltsin Campaign Rose from Tears to Triumph,”
Washington Post
, July 7, 1996, p. 1.
15
Yevstafiev, interview by author, March 7, 2000.
Yevstafiev, interview by author, March 7, 2000.
17
Berezovsky, interview by author, July 5, 1996.
Berezovsky, interview by author, July 5, 1996.
19
Alexander Oslon, interview by author, May 16, 1996.
Alexander Oslon, interview by author, May 16, 1996.
22
Vladimir Chernov, “If Papa Hadn't Become President,” interview of Dyachenko,
Ogonyok
, October 23, 2000, p. 5.
Vladimir Chernov, “If Papa Hadn't Become President,” interview of Dyachenko,
Ogonyok
, October 23, 2000, p. 5.
23
Gevorkyan, “Young Russian Capital.”
Gevorkyan, “Young Russian Capital.”
24
Anatoly Kulikov, “I Will Not Participate in Adventures,” interview,
Nezavisimaya Gazeta
, July 23, 1999, p. 8.
Anatoly Kulikov, “I Will Not Participate in Adventures,” interview,
Nezavisimaya Gazeta
, July 23, 1999, p. 8.
25
Chernov, “Papa.”
Chernov, “Papa.”
26
Karaganov, interview by author, November 9, 2000.
Karaganov, interview by author, November 9, 2000.
30
Yavlinsky said Yeltsin once asked him to pull out before the first round. He refused. Kiselyov,
President of All Russia.
Yavlinsky said Yeltsin once asked him to pull out before the first round. He refused. Kiselyov,
President of All Russia.
31
Paul Bograd, “Summary of Electoral Strategy,” memo to Chubais, April 25, 1996; Bograd, “Second Round Strategy,” memo to Yevstafiev, May 7, 1996; Bograd,
“The 30 Percent Target: A Strategy for an Electoral Majority Based upon Economic Reform, Democratic Principles, and Strong Leadership,” undated; Bograd, interview by author, March 26, 1999.
Paul Bograd, “Summary of Electoral Strategy,” memo to Chubais, April 25, 1996; Bograd, “Second Round Strategy,” memo to Yevstafiev, May 7, 1996; Bograd,
“The 30 Percent Target: A Strategy for an Electoral Majority Based upon Economic Reform, Democratic Principles, and Strong Leadership,” undated; Bograd, interview by author, March 26, 1999.
32
Mikhail Margelov, interview by author, November 2, 2000.
Mikhail Margelov, interview by author, November 2, 2000.
33
Alexei Levinson, interview by author, June 1996. Levinson is with the All-Russian Center for the Study of Public Opinion.
Alexei Levinson, interview by author, June 1996. Levinson is with the All-Russian Center for the Study of Public Opinion.
34
Hockstader, “Yeltsin Paying Top Ruble for Positive News Coverage,”
Washington Post
, June 30, 1996, p. 1. The European Institute for the Media in Dusseldorf, which monitored the Russian elections and came up with the estimates, also said it counted 300 positive references to Yeltsin compared to 150 for Zyuganov.
Hockstader, “Yeltsin Paying Top Ruble for Positive News Coverage,”
Washington Post
, June 30, 1996, p. 1. The European Institute for the Media in Dusseldorf, which monitored the Russian elections and came up with the estimates, also said it counted 300 positive references to Yeltsin compared to 150 for Zyuganov.
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