The Putin Mystique: Inside Russia’s Power Cult (25 page)

But Fridman recoiled in mock insult, his plump, ever-apologetic face appearing flustered. “I should stop talking to you after this,” he said, to more laughter. “You’re putting me on the spot.”

But from the audience, Kolesnikov pressed on.

“Of course it’s good!” Fridman finally managed to say.

Was Fridman mocking his own support of Putin, or was he mocking his caution over constructive criticism, as if the imprisonment of Mikhail Khodorkovsky in 2003 (for completely different reasons from criticizing Putin, as we shall see later) hung as a Damocles sword over every oligarch in Russia? Or was he mocking the Damocles sword itself?

In fact, the conceit of Putin’s sinister, Stalin-like authority was already a frequent punch-line among inside jokes for any community close to state power. And though it was not the 1930s – and the elites didn’t shy of such jokes publicly (as long as they did not ridicule Putin) – Kolesnikov saw it as symptomatic of a climate of fear that, however ironic or diluted, still did exist.

“Actually, this is a pretty serious situation,” he told me when we met for an interview on the following day. “In the last several years, people have grown accustomed to talking about the president and the prime minister with caution. Television has conditioned them to talk like this. Because where there is no censorship there is self-censorship. And it even pops up at
Russky Pioner
readings. We joke about it, but in reality it exists.”

That an oligarch like Fridman was in on the joke – and found himself expertly wriggling out of saying anything untoward, either too flattering or too critical – can reveal just how much concepts like ownership, capital, and favour are still irrevocably determined by the same kind of relationships that existed some five hundred years ago.

Identifying patrimonialism as one of the three elements of modern Russia’s political culture, the historian Donald N. Jensen wrote, in 2000: “Political authority was viewed by traditional Russian elites as closely related to property ownership. The Tsar – who identified the state with himself – ‘owned’ the nation, its vast resources, and its citizens. He concentrated in his hands the most profitable branches of commerce and industry and granted favoured nobles economic privileges for their support.” Jensen goes on to point out that these patrimonial attitudes continue to characterize how prominent businessmen interact with the government.

Writing in 2000, before Putin would prove just how closely his governance resembled that of his predecessor, Jensen was applying these elements to President Boris Yeltsin’s “court,” where the modern-day “Tsar” avoided “identifying with any single faction and instead balanced off ministers, business tycoons, and security chiefs, who in the absence of selected political rules of political competition, were in perpetual competition with one another for his favour.”
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Two circumstances were pivotal in establishing the current balance of power and money in Russia: the loans for shares programme in 1995, and the subsequent decision of a few key members of the moneyed elite – headed by the most ambitious of them all, Boris Berezovsky – to prevail on the ailing President Boris Yeltsin to anoint Vladimir Putin as his successor in 1999.

These two developments are connected because they rested on a very simple premise: an agreement (and it was possibly the only thing they would ultimately agree on) by the group of people close to President Boris Yeltsin – known as the Family – that they must maintain their assets, and hence their power, at all costs. They believed that Putin – with his respect for loyalty and his understanding of how business worked – was the best option to ensure that
status quo
.

Among the chain of events that eventually connected Vladimir Putin to Boris Yeltsin was a little-known meeting, in 1991, with the man who would become the oligarch Boris Berezovsky. Putin, then the head of the International Relations Committee under St. Petersburg mayor Anatoly Sobchak, oversaw the flourishing of private business in the city – using his connections in the KGB to
facilitate business deals with foreign companies, specializing in his favourite type of enterprise, the joint venture.
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Berezovsky, then the head of a software company LogoVAZ, needed an official middleman to facilitate a St. Petersburg business venture. A mutual friend, Pyotr Aven, introduced the two. At the time, Aven was the chairman of the Foreign Economic Relations Committee and the all-out go-to man who was instrumental in helping Putin clinch the oil for food plan where lucrative export tenders were alleged to go to some of Putin’s friends in the oil processing industry while the food wound up mysteriously disappearing.
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Berezovsky, who would later become President Putin’s staunchest foe in exile, was impressed by the former KGB colonel who helped him out and didn’t even ask for a bribe.
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And he would remember his entrepreneurialism and his loyalty years later when recommending him as a successor to Yeltsin.

By 1996, Berezovsky and Pyotr Aven would become part of what was called, as an inherently new type of power structure, the
semibankirschina
, or the Rule of the Seven Banks. Russians already recognized the parallels between how their country was ruled following the collapse of the USSR, and the leadership crisis during the Time of Troubles between 1598 and 1613. The rule of the Seven Boyars – the group of nobles who reigned in Russia for several months before inviting in the Polish King Wladislaw in 1610 – was easily translated into the rule of the Seven Bankers, together with its apparent sell-out to the West. Indeed, the term appeared soon after Berezovsky publicly named seven men, predominantly bankers, who controlled 50 percent of wealth in the country: Vladimir Potanin, Vladimir Gusinsky, Mikhail Khodorkovsky, Pyotr Aven, Mikhail Fridman, Alexander Smolensky, and Berezovsky himself. It was these men, according to journalist Andrei Fadin, who “form the will of the President.”
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The Seven Boyars also included nobles who had formed the will of Tsars from Ivan the Terrible through to Boris Godunov. But the
semibankirschina
had a very specific reason for getting the bragging rights to forming President Boris Yeltsin’s “will”: they had ensured, using their media assets, that he beat his Communist foe, Gennady Zyuganov, against all odds during that summer’s presidential elections.

There was another reason, too. Just a year before the elections – partly because Yeltsin would need their support and partially because his government was labouring under a fifty trillion rouble debt – these seven men wound up with the choicest spoils of Russia’s oil and gas industry for next to nothing.

The mechanism by which this happened – called the loans for shares programme – was devised in summer 1995 by Vladimir Potanin and Alfred Kokh, another St. Petersburg acquaintance of Putin from the Leningrad Privatization Office who later became the director of the State Property Committee in Moscow. Created specifically to circumvent a State Duma ban on privatizing strategic oil assets, the plan entailed offering shares of oil refineries as collateral for loans to the state – loans that everyone knew the state would never pay back. Potanin’s Onexim Bank, since he was one of the authors of the plan, was first in line. It loaned the government $100 million in return for 38 percent of Norilsk Nickel and another $130 million in return for 51 percent of the Sidanko oil company (to understand just how undervalued that was, note that British Petroleum would pay $571 million for a mere 10 percent of Sidanco shares just the following year, in 1997).
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Mikhail Khodorkovsky’s Menatep bank would get the next best thing: 45 percent of the Yukos oil company for $159 million.
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In all, between November and December of 1995, twelve enterprises were auctioned off to these seven bankers, who promptly sold the shares back to themselves through offshore and shell companies in a rigged privatization that few even pretended was fair.
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Boris Berezovsky, the most power-hungry of the seven, who would go on to help secure Yeltsin’s re-election in 1996, jumped into the auction at the last minute, cornering Yeltsin’s bodyguard, Alexander Korzhakov, into approving a loan for shares of the Sibneft company.
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It was for these reasons – his loan for Sibneft and his central role in organizing the so-called Davos Pact that would bankroll Yeltsin’s re-election campaign – that Berezovsky would be in a position to broker first Putin’s appointment as prime minister in August 1999, and then help orchestrate his ascendency to the presidential seat.

The loans for shares auction irrevocably connected the oligarchs to the president and his successor in a vicious circle of mutual debt.
And so the involvement of the government – which, however weak, still wielded the full force of the army and security structures (as the role of Yeltsin’s bodyguard, Korzhakov, demonstrates) – was far more central to the acquisition of wealth than the most corrupt robber barons of the 19th century West could imagine.

Much as the mutual “compromising materials,” or
kompromat
, in the security structures bound its members into complaisance in case loyalty failed, the loans for shares scheme bound the Seven Bankers and the president through an extraordinary and unprecedented exchange of favours. The oligarchs had bailed out a cash-strapped president who was desperately struggling to pay pensioners, teachers, doctors and army officers to keep the country from collapsing. But they had also acquired strategic assets on the cheap – benefitting from what everyone, including the president, understood to be a rip-off. By both taking part in this rip-off, the government and the oligarchs were bound to one another in what the Australian Ambassador Glenn Waller called an “incestuous” relationship.
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After such an exchange, devoid of either moral legitimacy or legality, the sovereign exercised the option of taking back the property he had temporarily given to a vassal:
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not as a matter of policy, but solely at his pleasure.

The Seven Bankers understood this long before Putin came to power – though not all of them would adhere to this ancient wisdom. Soon after his acquisition of Yukos, Mikhail Khodorkovsky demonstrated his grasp of this feudal relationship with the state. Referring to the prime minister as his “boss,” he would joke that “I don’t own anything, I rent it.”
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He would explain that he would even step down as head of his own bank if the prime minister asked him – because the “state is the dominant force in the economy.”
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When, as president, Vladimir Putin did just that (first with Gusinsky, then with Berezovsky, and then with Khodorkovsky), many feigned shock, as though they had forgotten in what “incestuous” circumstances this wealth had been acquired in the first place. Those who lauded the move, like William Browder, mistakenly thought of it as part of a policy of renationalization and an attempt to implement justice, rather than the Tsar exercising his right based on the unspoken rules that had been established between him and his boyars in the absence of the rule of law.

Those rules have evolved, under Putin, into a curious mix of the ancient and the new, where the favour of the sovereign is jealously guarded and where capital is built with his approval – but where everyone wears Brioni business suits and despises cheap flattery, opting for a staunchly postmodern demeanour to attract investors.

After standing for hours in the rain outside their factory on June 4, 2009, the workers of Pikalevo heard Vladimir Putin shout to them, “Don’t worry, your factories will start working, I promise,” and went home to their television sets, relieved. It was there that they saw the public thrashing of Oleg Deripaska, the oligarch who owned the plant where they worked. Despite Putin’s soothing wrath (for they were unabashedly delighted to see a baron getting what they felt he deserved), many of the workers who had taken part in the protest later described the pen-throwing incident as “just a game.”

Even without knowing the details, the workers of Pikalevo seemed to sense that Putin was lying as he referred to plant managers as “cockroaches,” because they saw Deripaska’s wealth, much like that of any oligarch in Russia, not as something earned by hard work, but merely a token of the favour of the Tsar.

Deripaska has prided himself on not taking part in the shameful loans for shares auctions. After founding an investment company in 1990, when he was just twenty-two, he started buying up shares in Siberian aluminium plants, gradually building up his RusAl aluminium empire and his Basic Element minerals holding. Slightly younger than the members of the Seven Bankers and untainted by the loans for shares auction, Deripaska has enjoyed a somewhat favoured status in Putin’s circle, and the residents of Pikalevo, who understood the structural relationship and the unspoken rules that governed this favour, clearly sensed this.

In October 2008, when the global financial meltdown reached Russia, Deripaska had already become the beneficiary of an unprecedented $4.5 billion state loan by the VEB (Vneshekonombank, the state economic development bank) – part of a $10 billion government bailout to several companies, including $2 billion for Mikhail
Fridman’s Alfa Group. But the handout to Deripaska exceeded VEB’s $2.5 billion limit on loans to a single company by nearly two-fold.
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And while analysts attributed the favour to RusAl’s aggressive lobbying, “lobbying” doesn’t appear to be the right word for the interaction between RusAl and the government, for an exceedingly simple reason: the chairman of the supervisory board of the VEB who approved the loan happens to be Vladimir Putin.
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Deripaska did not need to hire lobbyists to remind legislators in Parliament of their constituency or the sources of their campaign funds. He just needed to bring up the issue with Putin directly at one of their many public (and private) meetings.