The Oligarchs (51 page)

Gusinsky too was feeling more and more pressure. “They summoned me to the Kremlin and they told me, if you continue showing Chechnya, we will strip you of NTV and kill you,” Gusinsky recalled. “It felt scary. But I could not agree to it, of course. I grew up on the street, didn't I? I don't like to be threatened. I am deeply scared, of course I am, but I cannot show to anybody that I am afraid, can I? I said, fuck off—all of you.”

If his tormentors thought they had defeated Gusinsky, they were wrong. They saved him. The beginning of the Chechen war in December 1994 changed Gusinsky's life forever. It forged a new, popular, private television channel, NTV, which soon posed a serious challenge to Yeltsin's authority.

NTV not only brought home the horrors of the war but became a sort of alternative power center, telling the stories that the government would not admit. Night after night, NTV broadcast in a way that television in Russia had never done before. When a Russian helicopter was downed, NTV showed the bodies, but government officials said nothing. When Russians were taken prisoner in mid-December, NTV
showed them; the government said there were no prisoners. When Yeltsin said the bombing of the presidential palace in Grozny had stopped, NTV showed the bombs still falling.

Kiselyov told me that in 1994, even before the war began, “We were permanently in Chechnya from late spring, throughout the summer, into the fall.” More than any other television channel, NTV was prepared when the war broke out, and broadcast footage of the troop concentrations, the mobile field hospitals, and the war itself. Gusinsky recalled, “Thanks to our honesty in covering that war, we became the NTV company. We were honest. We were showing what we had to show. It was exactly at that point that I realized what public service was. Exactly at that point.”

Fearing arrest, Gusinsky left Russia on December 18 and remained in London for six months. The pressure, the threatening phone calls, and the vows to shut down NTV continued into the spring as the war turned into a quagmire for Yeltsin. Kiselyov told me that after all the tumult he and his colleagues had been through in recent years, when the Chechen war began, they knew exactly what to do. They did not debate how to cover the war—they went and did it. “We had a good understanding that information was a powerful tool in our hands, to fight back,” he said. The reporting was impassioned, at times sickening in its unblinking treatment of the war's ghastly, bloody victims. My colleague Lee Hockstader, who covered the war at great risk and with enormous personal intensity, wrote of NTV: “Mangled limbs, agonized death throes, eviscerated corpses, all of it was fair game for the evening news. The tone of some of the coverage became overtly antiwar.” Oleg Dobrodeyev, who had founded the channel with Gusinsky and Kiselyov, led the day-to-day coverage. His rule was that if correspondents saw it, they aired it. “I remember myself sitting and watching all those reports, making decision about what would and would not be put on the air,” Dobrodeyev told me. “I broadcast everything,” he said, because the footage spoke for itself—powerfully. The pathos of war on television, which Americans had discovered a generation earlier in Vietnam, proved gripping to Russian viewers, who had never seen anything like it.
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NTV enjoyed a surge of public trust. Television became the chief source of information about the war; newspapers and magazines were far behind. Vsevolod Vilchek, a longtime public opinion specialist for Channel 1 and later for NTV, reported that when people were asked at the outbreak of the war if they were
following events, 80 percent said yes. The audience for television was expanding, but the share of the new viewers that went to Channel 1 was tiny, just a few percent. The second channel, RTR, did better, but NTV got an astounding 70 percent of the new audience.
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NTV doubled its total viewers and at the peak of the war NTV audience in Moscow was 48 percent—nearly half of all the televisions turned on at that time.
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Those early months of the Chechen war transformed NTV into Russia's most professional television channel, and people noticed. So did Yeltsin.

On July 8, 1995, NTV aired another segment of its regular weekly satire program,
Kukly,
which featured life-sized puppets and was written by a wicked humorist, Viktor Shenderovich.
Kukly
had been launched just as the Chechen war was getting under way, and it unexpectedly became another thorn in Yeltsin's side. The show that evening depicted government leaders as tramps who could not subsist on the government's minimum wage. Yeltsin was shown wandering through a passenger train, begging for change, dragging his security chief, Korzhakov, along as a baby. Yeltsin had a thick skin after years in politics, but Gusinsky believed
Kukly
provoked him into fits of rage. After the train episode, the general prosecutor launched a criminal investigation of
Kukly,
which brought the show even more attention. Nothing ever came of the probe, but Gusinsky realized the penetrating influence of his television channel. “Yeltsin had quiet hatred reserved for me,” Gusinsky said. Yeltsin once called Luzhkov personally and implored him to ask Gusinsky to stop the puppet show.

“They humiliate me!” Yeltsin begged. But the show went on.

The Kremlin attack on Gusinsky had one major consequence: it drove a wedge between Gusinsky and Luzhkov. The Moscow mayor felt the pressure from the Kremlin and wanted to keep his head down. Gusinsky's Most Bank depended on the “authorized” accounts of the city, but those accounts were shifted to the new Bank of Moscow. Gusinsky's relationship with Luzhkov cooled. At some point the two men, who had been so close to each other since their days in the cooperative movement, stopped talking to each other. Gusinsky also lost the Aeroflot business to Berezovsky, a decision taken in the Kremlin as punishment for his opposition to the war.

“It was a very difficult time for the whole group,” Malashenko recalled of Gusinsky's team, “because people in the bank were of course extremely upset. For them, it was the death of their business.
But I told them, listen guys, we don't have much choice. We are not going to sacrifice NTV.”

Gusinsky had reached a crossroads. He decided that his future lay not in banking and not in construction, but in media, as a mogul. A one-minute advertisement on NTV cost about $10,000. It was a tremendously valuable enterprise, both for business and for politics. He had built it up from almost nothing. Gusinsky was proud of this: his assets were not “ready-made” Soviet-era enterprises like Berezovsky's Avtovaz or Ostankino. Gusinsky was an entrepreneur, perhaps because he had to be—he built from zero. He had no reservations about lobbying the government, as he had done to win the license for NTV, but the station itself was created by him. It was not a Soviet leftover. It was his ticket to the future.

The view from the club on Sparrow Hills was different. The other tycoons were just beginning to look over a thick book from the State Property Committee. It was a list of ready-made Soviet-era factories and other industrial assets that would soon be theirs for the asking. They didn't want to start something from scratch, as Gusinsky had, when there were such lucrative properties just waiting to be plucked—the best mines and oil refineries in all of Russia.

C
HARLES RYAN, who delighted in buying a fistful of Menatep Bank shares on a street corner in 1991, became an adviser to the privatization team working with Anatoly Chubais. One of his first acquaintances was Alfred Kokh, a sharp-tongued, bullheaded young man, deputy head of the Leningrad privatization office in those early days. Later both of them came to Moscow. Ryan cofounded United Financial Group, an investment bank. In 1995 Kokh was appointed acting director of the State Property Committee, in charge of continuing the sell-off of industry begun by Anatoly Chubais, who became one of two deputy prime ministers.

It was a difficult time for the Chubais team; the privatization of state property had stalled, Boris Yeltsin was weak, and the Communists were gaining strength in polls for the December 1995 parliamentary elections. On Saturdays, Kokh was often in his office, and the door was open. Ryan liked to wander in and shoot the breeze on these quiet afternoons with Kokh, who was known for his earthy language and short temper. One day in late summer of 1995, as they were talking, Kokh asked Ryan casually, “What do you think about Uneximbank and Menatep?”

Ryan discovered that Kokh was working on a privatization deal that would change Russian capitalism and politics forever. On his desk was a scheme in which Russia would give away its industrial crown jewels—the most lucrative oil companies and richest metal mines—to a coterie of tycoons, all of them from the Sparrow Hills club. Vladimir Potanin of Uneximbank was first in line, followed by Mikhail Khodorkovsky of Menatep. From the beginning, Kokh had handpicked the winners, Ryan recalled. According to the plan, shares in the factories were to be given to the tycoons for safekeeping, in exchange for a loan to the government. Everyone knew the deficit-ridden government would not repay the loan. Then the tycoons would sell the shares, as repayment of the loans. But there was a twist. The tycoons would probably sell the shares to themselves, very cheaply, through hidden offshore companies. That way, they would get the valuable assets for next to nothing. It looked to Ryan suspiciously like a backdoor giveaway, a loan to the government in exchange for colossal oil and mineral riches. The scheme was called “loans for shares,” and Ryan told Kokh: “This loans for shares thing really stinks.”

“What do you mean?” Kokh asked.

“You know Alfred, the funny thing is that you are going to get hosed. You are going to be the scapegoat for all this. You are the one signing all the orders.”

“That's not true,” protested Kokh. “Everything I have done has been approved by Anatoly.”

“Alfred, you're such a joker. In four years, Chubais is going to have some great job, and you're going to be the sucker.”

Kokh grew furious and shouted at Ryan, “Fuck you!” Ryan later recalled, “I told him where he could stick it. And this loans for shares thing was pretty much the end of my friendship with those guys.”
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In feasting on easy money, Khodorkovsky tasted every delicious morsel. His bank, Menatep, generated handsome profits with ruble-dollar speculation, plunged into voucher trading, and was a leader in the superlucrative “authorized” banking for the federal and Moscow governments. But in the summer of 1995, one of the most rewarding easy money schemes, ruble-dollar speculation, finally dried up. The Russian Central Bank, struggling to bring inflation under control, imposed a new exchange rate “corridor,” a narrow range in which the
ruble would be allowed to rise and fall against the dollar. The banks could no longer gamble on wild swings in the exchange rate. The Central Bank would use its reserves to enforce the limits. Chubais declared that the era of easy money was over. For banks that were speculating on the exchange rate, he said, “buying and selling dollars is an avenue that is now closed.”
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Chubais hoped that getting control of the currency would finally dampen the raging hyperinflation that had begun in 1992 and lead to the first real stability in the economy since the beginning of shock therapy.

Soon it became evident that the days of easy money were not yet over. Other fast-money games abounded, and new ones were being invented. A short-term government bond, with a maximum term of three months, was paying amazingly high annual interest rates, sometimes climbing over 200 percent.
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The sizzling bond was easy money with the added benefit of low risk: it had Russian government guarantees. The new bonds were called GKOs, and they would eventually lead the Russian government to disaster. But in the early years they were incredibly profitable: just sit back and watch your money grow by leaps and bounds.

Despite this and other easy money temptations, Khodorkovsky did not want to live out his life as a banker; he longed to be a captain of industry. During mass privatization, Khodorkovsky snapped up many industrial firms, bidding with nothing more than a promise to make future investment. In September 1995, he created a financial-industrial conglomerate, Rosprom, to control his twenty-nine industrial companies in oil, metallurgy, chemicals, food processing, textiles, wood pulp, and paper.
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Still, Khodorkovsky was not satisfied with the grab bag assortment of factories he had assembled. When international consultants Arthur Andersen suggested that he model himself after Samsung, one of the Korean
chaebol,
or industrial conglomerates, Khodorkovsky immediately dismissed the idea, thinking it could not possibly work in Russia, and decided to pour his energy into “one branch” of industry. That branch was oil.
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Away from Moscow, on the other side of the Ural Mountains, in the broad basin of western Siberia, the Soviet Union had opened up huge new fields of oil and gas in the 1960s and 1970s. The deposits stretched across the West Siberian basin, which is drained by the Ob River, Russia's third largest, as it wanders 3,650 kilometers from Altai in the south to the Kara Sea in the north, largely fed by spring thaws
and melting snow. The river's course is a road map to mammoth underground reserves of oil and gas, but unstable bogs and harsh weather conditions discouraged exploration until the 1970s. Then, in the late 1970s and 1980s, the giant fields were recklessly and wildly exploited in a frantic effort to prop up the failing Soviet economy with revenues from oil exports. At the time of the Soviet collapse, oil extraction in Russia was sliding downward, from a peak of 591 million tons in 1987 to 303 million tons in 1998.
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The Soviet oil industry was a vast archipelago of outdated, state-run “production associations,” oil enterprises based largely on the location of their fields. More than anyone else, Vagit Alekperov, an ethnic Azeri who was director of a production association in Kogalym, led the way in transforming post-Soviet Russia's industry into modern Western-style companies. In 1991 and 1992, huge volumes of oil were being illicitly exported to take advantage of the large gap between domestic and export prices; a ton of oil sold for export would fetch $100 or more but could get only a fraction of that price on the domestic market. In this time of terrible flux and wholesale theft, Alekperov created his own Western-style oil company, Lukoil, out of three Siberian production associations, two refineries, and a trading company. Lukoil was Russia's first vertically integrated oil company, handling everything from exploration and drilling to refining, distribution, and sales, very much like modern Western oil companies. Alekperov, who took the initiative at a time when the economy was in chaos, set an example that the Russian government under Yeltsin then followed for the rest of the industry. The idea was to reassemble the oil fields and refineries of the far-flung Soviet system into a dozen large private companies, building a new, market-oriented oil industry. By contrast, the natural gas behemoth Gazprom was left largely as it had been in Soviet times, as an inefficient and hidebound monopoly. On November 17, 1992, Yeltsin signed a decree establishing the first three vertically integrated oil companies, including Lukoil, and ordered the industry restructured.
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