The Oligarchs (63 page)

“What do you mean?” Margelov inquired.

“We will work with the absence of the client,” Lesin said.

“Can we ask more questions?” Margelov said.

“No.”

Yeltsin's busy travel schedule was canceled. His aides said he had a cold. “The president is in good form,” said his press secretary, Sergei Medvedev.

On June 26, Yeltsin had come home at about 5:00 P.M. While resting briefly in an armchair, he suffered a major heart attack. His doctor was nearby and he was treated immediately. Yeltsin recalled in his memoir how the Kremlin doctors had been trailing him throughout the campaign, warning of the consequences of his intensive activity. Now the stress and strain had caught up with him. “The pain sliced through me, an enormous crushing pain,” he recalled.

The heart attack posed an extremely delicate problem for the campaign. Oslon's polls showed that if the public knew Yeltsin was in ill health, he would lose support. The polls showed Yeltsin's poll rating was slipping one-half to one percentage point each day. The campaign staff had prepared a huge finale of Yeltsin appearances across the country, and all the events would have to be canceled.

“We also had to try to prevent any leaks about my illness and hold back information from everyone,” Yeltsin recalled. On the weekend before the July 3 vote, Yeltsin taped a preelection address to the country. A camera crew came to Barvikha, the presidential rest home just outside Moscow. Then the tape was brought back to Video International for editing. One of the cameramen told Margelov to be prepared for a shock. The old man was in very bad shape.

“It was quite obvious that it was very difficult for Yeltsin to speak,” Margelov said of the tape, which he saw in its raw form. “He was sweating all the time. It was difficult even to pronounce words. Sometimes he couldn't finish the sentence. Sometimes it was difficult for him to even breathe.”

The video specialists then carried out an amazing reconstruction. Using digital editing technology, they spliced and retouched the entire short speech. “It was serious work to make it look nice,” Margelov told me. “Not many people could see that something was wrong.” The precarious health of the president was covered up on the eve of the vote. My own impression of the tape, the night I saw it on television, was that Yeltsin seemed wooden, and the tape was jerky. But to millions of people, that was hardly a clue that he had just suffered a major heart attack.

“We were absolutely sure we were doing the right thing,” Margelov said. “No, there were no moral questions during the second round: are we deceiving somebody or not? Because I think the goal was quite obvious. Not one of us wanted the Communists back.” Then the tycoons delivered their final election gift to Yeltsin: they broadcast the doctored tape and didn't say a word about Yeltsin's heart attack. Malashenko was present when the videotape was made. “What could I do?” Malashenko said. “He was very sick at the moment. The only thing I did to protect my conscience, I didn't tell anything to my colleagues. The sin was fully on me. Journalists were never aware” of it. “And I just had to do my job as a member of the election campaign. And my position was very simple. I made the statement publicly more than once that I prefer Yeltsin's corpse to Zyuganov. Unfortunately. That was my choice.”

The deception continued on Election Day. Yeltsin cast his ballot at a polling place in Barvikha. Kremlin video cameras showed Yeltsin standing and at one point flashing his familiar wry smile. But the videotape was edited—to delete the two white-coated doctors standing nearby. That would have been a clue that something was amiss, a risk that Yeltsin and his campaign did not want to take.

 

On July 3, Yeltsin was elected with 53.82 percent of the vote to 40.31 percent for Zyuganov, and 4.83 percent “against all.” The Davos Pact succeeded, and Chubais was euphoric. In a press conference on July 5, Chubais compared Yeltsin to Peter the Great, Russia's foremost westernizer, and announced that Russia's post-Communist path was irrevocable. “Irrevocable. Russian democracy is irrevocable; private ownership in Russia is irrevocable; market reforms in the Russian state are irrevocable.”

Berezovsky was also feeling expansive. Just after the election, he made a single comment that came to crystallize the power and reach of the Russian oligarchy. In a postelection interview, Berezovsky told the
Financial Times
that the seven tycoons controlled about 50 percent of the Russian economy. Berezovsky overstated their economic prowess, but he was more than correct about their political influence. They had arrived at the definition of an oligarchy—they were rich and powerful kingmakers.

The seven met after the election to decide which of them should
go into the government. Chubais said they could appoint one of their own as a deputy prime minister under Chernomyrdin. The embrace of wealth and power was now complete, and it was time to sort out the loot.

In earlier years, when the moguls gathered to talk or make deals, when they dined in the villa on Sparrow Hills, or when they entered the Kremlin to warn Yeltsin, they were largely hidden from public view. But in the autumn of 1996, it was no longer possible to conceal their ambition and their presence in the highest councils of the state. They worried, among themselves, about a backlash. Five of them had parents, either one or both, who were Jewish: Gusinsky, Berezovsky, Friedman, Smolensky, and Khodorkovsky. Gusinsky was elected president of the Russian Jewish Congress in January 1996 and was making business deals in Israel. Individually, some of them had brushed up against anti-Semitism in earlier years, but now, as a group, they began to fret about the possibility of a public reaction to the “Jewish bankers.” The spiteful words were already on the lips of some nationalists and reactionaries. Berezovsky told me at the time, “Of course anti-Semitism exists today in Russia. And it exists today not only in closed form, as it existed in the Soviet Union, but in open form as well.” The earthy Smolensky said the oligarchs knew they fanned resentment and envy, recalling a popular saying, “If there is no water in your faucet, it is the Jews who have drunk it.”

Partly out of fear of stirring up more public emotions, the group settled on Potanin as their man in government because he was not Jewish. Soon, however, Berezovsky went into government as well. On October 29, he was appointed deputy secretary of the Kremlin Security Council and given responsibility for working out a settlement in Chechnya. The appointment was followed by the disclosure in
Izvestia
that Berezovsky held an Israeli passport. Under Russian law, he could not hold dual citizenship and work in a sensitive government post, and the news triggered howls of protest from nationalists and Communists in parliament. Berezovsky responded to the disclosure with clumsy explanations. He said he had only visited Israel twice, once for three days and once for six days, and the last time was in 1994. He feigned ignorance of whether he had formally been given Israeli citizenship. “I started the formalities; I did not bring the process to the end,” he said in a television interview with Kiselyov. “When the question arose of my citizenship, the hitch was that I did not know what the situation
actually was.”
⁵⁰
In fact, he was an Israeli citizen, and he had his citizenship annulled to take the Security Council post.

The Davos Pact solidified Berezovsky's convictions that wealth should dictate to power. In his view, the tycoons were the best and brightest of their generation. Just as they had made fortunes in the new system through skill and foresight, he said, they also proved brilliant political kingmakers in the election. The people who served in government should listen carefully. “Strong capital—strong country,” Berezovsky declared.

“From my point of view, in general, power and capital are inseparable,” Berezovsky told me in December. Then he paused. Berezovsky, in a business suit and crisp white shirt and tie, was speaking in a small hideaway office at the Logovaz Club. He rethought what he had just said and offered a modification. “I think that two types of power are possible,” he said. “Either a power of ideology or a power of capital. Ideology is now dead.” The new power was capital. “I think that if something is advantageous to capital, it goes without saying that it is advantageous to the nation.” In other words, the oligarchs would show Russia the way.

Berezovsky swiveled in his chair slightly, and an aide brought a cellular telephone for a quick conversation. He resumed the interview in a philosophical mood that reflected the thrill of the election victory, a sense that he had done everything right, a feeling of enormous satisfaction at the rise of the oligarchs. He had lived through a revolutionary time, Berezovsky reflected; Russia was passing through a stormy, violent upheaval in which public property was passing into private hands. All revolutions were unavoidably painful, filled with jealousy and envy. Even among the tycoons, he said, those who won the greatest prizes were still greedy for more, and those who lost out were not happy. Society too was deeply divided, he admitted, and the poor were embittered. “I know that in the United States and Western Europe, very rich people are also not really liked,” Berezovsky said. “And I can tell you that in today's Russia, this feeling of dislike for the rich is a hundred times greater than in the West. But I'm certain, this is a matter of time. And I'm certain that in time, society will to a larger extent understand that the rich are not those to whom suddenly, unexpectedly, wealth fell on their heads, but that the rich are those who, first of all—there are exceptions—but the rich are those who first of all are more capable, more talented, and more hardworking than others.”

Berezovsky was correct that the tycoons were talented and hardworking. But it was also true that many of them did have sudden wealth fall on their heads. Berezovsky might also have added that they were the most ruthless and relentless of their generation. His own empire was still expanding and included the Logovaz car dealerships; Sibneft, the oil company; Aeroflot, where he was profiting from the cash flow of overseas ticket sales; ORT, the television channel; Transaero, an upstart Russian airline; and a number of media properties, including
Nezavisimaya Gazeta
. But now, in his moment of victory, Berezovsky yearned for respect, for himself and for the oligarchs.
⁵¹

This desire grew stronger as the tycoons began a romance with foreign capital after the 1996 election. A turning point came in November, when the Russian government floated a $1 billion Eurobond, the first such borrowing on global capital markets since the 1917 revolution. The successful flotation opened doors to relatively cheap foreign capital for the tycoons, if they could pass muster with Wall Street and in the financial capitals of London and Frankfurt. The oligarchs began to draw from a vast new reservoir of cash.

But first they had a very important series of transactions to complete at home. After September 1, 1996, it was time to collect the “second key” from the loans for shares auctions. As planned, the winners of the first auctions were given permission to sell off the shares they had taken as collateral for the loans to the government. And as Ryan had predicted, they sold the shares to themselves.

Khodorkovsky proved the most cunning. Amid the tumult of 1996, he finagled a deal allowing him to take control of Yukos early. Khodorkovsky got Yeltsin to sign a decree that allowed him to issue new shares in Yukos to pay off the debts of the subsidiaries. This meant, simply, that there would be one-third more shares outstanding than before. The effect of issuing the new shares was to reduce the size of the block that Khodorkovsky was holding for the government. It fell from 45 percent to 33 percent. Then Khodorkovsky appeared again, on the other side of the counter, to buy the new shares. This time, he bought most of the new shares for what a source told me was $100 million. Recall that Khodorkovsky also had purchased a block of shares in 1995 at an investment tender. When the new shares were combined with those he bought at the investment tender, Khodorkovsky controlled more than 51 percent of the company. The point was
that no one could take it away from him—Khodorkovsky had grabbed the “second key” even before the official ceremony.

Khodorkovsky originally loaned the state $159 million for the 45 percent stake in 1995. A year later, he sold the stake to himself, using a shell company, for $160.1 million. The state's profit on the deal was almost zero. The state gained little more than it had in 1995, and Khodorkovsky got an oil company. In the original concept of loans for shares, there was a hope that when the shares were sold, the state would reap a higher price. But in fact once the oligarchs began selling the companies to themselves, the prices remained rock bottom.

Potanin then sold the 51 percent of Sidanco, the oil company, for which he loaned the government $130 million. The winner of the stake: Potanin (again). He paid $129.8 million. Within a year, Potanin sold just 10 percent of Sidanco to British Petroleum for $571 million! Later in 1997, he sold the 38 percent of Norilsk Nickel to himself, for $250 million, an improvement over the $170 million he had loaned the government, but a pittance considering the billions of dollars in revenues Norilsk was to produce annually in the next few years.

Berezovsky got the key to Sibneft without spending too much. He had loaned the government $100.1 million for 51 percent of the company in 1995 and sold it eighteen months later to himself for $110 million.

Gusinsky never got a chance to play in loans for shares, but after the election, he too was rewarded. The state natural gas monopoly, Gazprom, purchased 30 percent of NTV, providing Gusinsky with badly needed capital for expansion.
⁵²
Yeltsin also signed a decree giving Gusinsky twenty-four-hour access to the airwaves on Channel 4, an important concession that allowed Gusinsky more time to broadcast commercials as well as news and films.