| According to the Accounting Chamber, a watchdog set up by the Russian parliament to monitor state finances, much of Aeroflot's profits from overseas ticket sales go to a Swiss-based firm connected to Berezovsky. |
THE EUROPEAN, 25-31 May, 1998 Super Tsar COVER STORY NINE LIVES OF BEREZOVSKY Rupert Wright, Askold Krushelnycky and Mark Whitehouse � London & Moscow Russia: Yeltsin is paralysed in the face of unrest and chaos but the other Boris, a man with unparalleled political and economic power, is now stronger than ever. IN the power games that stand for politics in Moscow today, one man is pre-eminent. Nobody in Russia has ever voted for Boris Berezovsky, a 54-year-old businessman, but his ability to influence events in the country is unparalleled. Like a cat, throw him out of a window and he will land on his feet. This week Boris Yeltsin, the country�s president, will learn again the painful lesson that Berezovsky cannot be ignored. Russia is in a serious economic crisis, battered by events both domestic and international. Teachers and miners have taken to the streets demanding payment of salaries which have not been made for months. The scenes are reminiscent of those that took place in central Europe back in 1989. Even more worrying for Yeltsin is the run on the currency, the rouble, which has forced the central bank to raise its main refinancing rate from 30 per cent to 50 per cent. Foreign investors hold more Treasury Bills (around $19 billion) than there are reserves of foreign currency ($15.5bn). Yeltsin has lost control of the country�s finances. The stock market is in free fall, down nearly 17 per cent last week. Foreign investors have taken fright at events in Asia, especially Indonesia's crisis, and Russia is caught in the crossfire. Even if the high interest rates tempt greedy investors to keep their cash in Russia, those rates will take a high toll on the country�s public finances. This years budget assumes a deficit of around five per cent of GDP. It also forecasts an average interest rate of 25 per cent. With the government the country�s largest borrower, any interest rate rise costs the government dear. It still makes only a meagre attempt to raise taxes: federal tax revenue is only 10 per cent of GDP. Low oil prices and last years warm winter have conspired against the government. Faced by international aggression, Russia has not hesitated in the past to adopt a scorched earth policy that defeats the opposition but at the same time cripples the country. Who is behind this scorched earth policy? Look no further than Boris Berezovsky. Berezovsky, bitter that his chosen candidate for prime minister, Ivan Rybkin, lost out to the newcomer, Sergei Kiriyenko, knows how to profit from instability. One of his newspapers ran stories all last week that devaluation was inevitable. Sergei Dubinin, the chairman of the central bank, could only moan: When you hear talk of devaluation, spit in the eye of whoever is talking about it. Berezovsky believes that wealth without political influence is not wealth. As Mikhail Khodorkovsky, head of the Rosprom conglomerate and a Berezovsky business partner, put it: Politics is the most lucrative field of business in Russia. And it will be that way for ever. No wonder Rupert Murdoch chose Berezovsky as his Russian partner. The Australian-American media mogul announced on 20 April that he intended to launch a move into Russia�s telecommunications market in partnership with Berezovsky. Nobody understands the Russian minefield better. Yet only a few months ago it looked as though Berezovsky had flown too high to the sun and had been burnt. His support for Viktor Chernomyrdin, the sacked prime minister, and General Alexander Lebed, both pretenders to the throne, irritated Yeltsin. The president was heard to mumble about kicking Berezovsky out of the country. Instead he appointed him executive secretary of the Commonwealth of Independent States (CIS). This may be a moribund organisation based in Kiev, where according to one of its members nothing happens but talking and drinking, but there are useful contacts to be made in the energy-rich, cash-poor regions. "For many, this is unexpected," said Yeltsin as he presented Berezovsky to the heads of the CIS states last month. "But I swallow it. It's for the sake of work." Despite his often erratic behaviour, Yeltsin is not a person who would swallow anything, except the occasional glass of vodka, without reason. He hates to depend on any of his courtiers. But his approval of Berezovsky shows just how much he is beholden to the man who bankrolled his victory in the 1996 presidential elections and who has developed close ties to Yeltsins daughter and adviser, Tatiana Dyachenko. Moskovsky Komsomolets, a Russian business magazine, has even suggested that Berezovsky helps manage the Yeltsin family finances. Berezovsky moved quickly to capitalise on his new post, which gives him an excuse to demand immediate access to the leaders of 12 former Soviet republics. In a whirlwind tour of CIS states, he has visited the heads of Azerbaijan, Moldova, Ukraine, Belarus and Armenia. With wealthy, corrupt governments, poor populations and troubled economies, these states are the ideal stomping ground for a businessman who has excelled in making money out of incestuous deals and rigged markets. "People say a lot of things about Berezovsky today, some of them good and some of them bad, but he is a person who is active and comes up with ideas," Chernomyrdin said at a recent celebrity soccer match. "And now, a few days after his appointment, look how many CIS countries he has been to." The quid pro quo is simple. Berezovsky can offer the CIS heads, many of whom will face re-election in the next two years, the expertise in mounting campaigns that he has proven with Yeltsin in Russia, as well as the support of Russian Public Television, a station he controls that broadcasts throughout the former Soviet Union. In return, they can offer preference to his businesses in servicing state budgets, privatisation and, in the case of Azerbaijan, access to the Caspian Seas rich deposits for his oil company, Sibneft. "All the CIS leaders are interested in the succession of power," said Berezovsky after meeting the Ukrainian president, Leonid Kuchma. "This idea is vital for all the CIS countries." Berezovsky is the man Russians love to hate. According to a Moscow newspaper, a top Russian security agent claimed last Friday that his boss ordered him to kill Berezovsky. This may be extreme, but time and again, Berezovsky has demonstrated a knack for turning seemingly hopeless situations to his advantage. His life is a story of cunning triumph in the face of incredible odds. The American business magazine, Forbes, has called him the godfather of Russian godfathers. A tireless self-promoter, Berezovsky sued Forbes in London for defamation. The court declined to hear the case. Softly-spoken and disarmingly courteous, Berezovsky still has the manner of the mathematics professor he once was. A British person who has spent a lot of time with Berezovsky said: "He wants people to like him. Its not affectation; its genuine. He is an intelligent cultured man who can talk about science, philosophy and literature as well as business and politics. His staff and bodyguards genuinely seem to like him. You meet him in the afternoon and he strikes you as charming but you cant help wondering what he did in the morning." Born in Moscow on 23 January 1946, into the Soviet equivalent of a middle-class family, Berezovsky showed a talent for mathematics at an early age. Partly because of his Jewish ancestry he initially had to settle for a training in electronics at the Moscow Timber Technical Institute, from where he graduated in 1967. Undaunted, Berezovsky went on to study at the mathematics faculty of Moscow State University and for a PhD in applied mathematics at the Academy of Sciences Institute of Management, where he headed a laboratory. He has written more than 100 scientific papers, many of which have been published in America, Britain, France, Japan and other countries. He is married and has six children. He keeps his family out of the limelight and often out of Russia, worried they might become a target for revenge by some of his business rivals. His career, however, started under Mikhail Gorbachev's perestroika, which opened vast opportunities for well-connected entrepreneurs. As the government liberalised trade, anyone who could find a way to arbitrage between the command economy and the free economy could make a killing. Oil and metals, for example, were still sold at heavily subsidised prices within the country. Traders who, with the help of a few highly placed bureaucrats, could get the materials on to the world market were able to make millions almost overnight. Berezovsky was an outsider, working on automated management systems at the giant Russian car company, AvtoVAZ, maker of the Lada sedan and Niva utility vehicle. But he nurtured a relationship with the firms director, Vladimir Kadannikov; in 1989 the two cut what turned out to be an immensely lucrative deal: Berezovsky set up an auto dealership called Logovaz and Kadannikov sold him cars at low state-dictated export prices. Logovaz resold the cars in Russia at market prices, making a tidy profit. Logovaz went on to become Russia's premier dealer of domestic and imported cars such as Mercedes and BMW, while AvtoVAZ floundered, building up huge debts and bleeding cash. Today, AvtoVAZ managers say they have ended their connection with Logovaz but the company still cannot escape from the grip of the so-called dealers who sell its cars and take the lions share of profits. An attempt at reform late last year resulted in the murder of several managers. Kadannikov and Berezovsky also collaborated to launch Avva, a consortium that promised to raise $3 billion to produce a new generation of Russian cars. In 1994 Avva sold $50 million in shares that doubled as lottery tickets for new automobiles. Most investors have yet to see any returns, though Avva did ultimately invest in a small assembly plant in Finland. In Russia's nascent capitalism, bribery to get around a stifling, all-embracing bureaucracy was essential. But many of the new businessmen used intimidation, violence and sometimes murder to get their way or eliminate rivals. In 1994 Berezovsky narrowly escaped an assassination attempt when a bomb went off next to his limousine as he was leaving the LogoVAZ headquarters in Moscow. His driver was decapitated. Worries about mortality, however, did not slow Berezovsky down. With the gains from his early ventures he expanded, building a business and media empire that now includes LogoVAZ, Sibneft, Aeroflot Russian International Airlines, Nezavisimaya Gazeta and Russian Public Television, (ORT). As with most Russian financial-industrial empires, his sprawling properties represent less a strategic vision than raw opportunism. The battle for control of ORT was among the ugliest of the early years of Russian capitalism. In 1995 the government appointed a television producer, Vladislav Listyev, one of the countrys most popular talk-show hosts, to head the company. Listyev announced that he intended to reorganise the company�s advertising sales, which were dominated by private companies that siphoned away most of the station's profits. Soon afterward he was shot dead in a contract killing. While the country mourned, Berezovsky took control of ORT. Berezovsky, at the time deputy chairman of ORT's board of directors, was one of the first suspects in the murder; his office was searched and he was questioned. The day before the killing a videotape was made of Berezovsky handing over cash to security officials. In November he himself sent it to be aired on a rival television station, NTV, and claimed he had made the recording to show he was being blackmailed by interior ministry agents who wanted money to reveal details about a planned assassination against Berezovsky. Few of the hundreds of contract killings in Russia have been solved and Listyev's murder is shrouded in mystery. Berezovsky has repeatedly denied any involvement. In an interview with the Moscow daily, Komsomolskaya Pravda, he sought to implicate Alexander Korzhakov, a parliamentary deputy who formerly headed the presidential security service. In most of his business interests, Berezovsky has followed the same scheme as at AvtoVAZ, eschewing major investments and shareholdings in favour of lucrative deals with management. At Aeroflot and ORT the state still holds the controlling stake, but in Russia shareholding does not necessarily translate into control of a companys finances. According to the Accounting Chamber, a watchdog set up by the Russian parliament to monitor state finances, much of Aeroflot's profits from overseas ticket sales go to a Swiss-based firm connected to Berezovsky. More recently, he has put his tentacles into Rosneft, the last big Russian oil firm still in state hands, taking control of the company�s financial flows right under the nose of the state property ministry, which is hoping to sell a 75 per cent stake this year for at least $2.1bn. To this day, Berezovsky declines to say exactly how much stock he owns in each of his companies, although he is believed to have only an eight per cent stake in ORT. In his 1996 tax return, he declared $435,000 in earnings and claimed a personal worth of only $38,521. But when Forbes last year ranked him 97th among the worlds 100 richest people, with an estimated net worth of $3bn, Berezovsky told the German magazine Focus that the figure was close to the truth. Berezovsky first gained entrance to the Kremlin through Yeltsin's ghost writer, Valentin Yumashev, now head of the presidential administration, who in 1993 enlisted his help in arranging the financing for the presidents second book of memoirs. But his day in the sun came only years later, amid the turmoil of the 1996 presidential elections. It was a scary time for the nations leading tycoons. Resurgent, largely unreformed communists, led by Gennady Zyuganov, were way ahead of Yeltsin in the polls and promising to reconsider the privatisations that had made a select few very rich. A communist win in the June elections would have upset the apple cart. Berezovsky's first move showed just how much he cared about democratic institutions. He and 13 other top businessmen sent an open letter to Yeltsin, suggesting a coalition government with the Communists and saying that elections would be too destabilising for Russia at the moment. The letter didn�t go over well in the Kremlin and Berezovsky was sent back to the drawing board. Teaming up with Anatoly Chubais, the privatisation chief whom Yeltsin had ejected from the government as a sacrifice to the Communists, Berezovsky and six other top financiers, including his former enemy Gusinsky, put together a presidential campaign the likes of which Russia had never seen. Under Chubais�s organisational purview, the tycoons pumped money into rock concerts and advertising campaigns throughout the country, giving their TV stations and newspapers over to pro-Yeltsin propaganda. Details such as journalistic objectivity and a $3m campaign spending limit didn�t matter. So much cash was coursing through the White House in Moscow that at one point two Chubais acolytes, Arkady Yevstafyev and Sergei Lisovsky, were stopped at the exit carrying a cardboard box stuffed with $500,000 in freshly printed $100 bills. During the election campaign, which Yeltsin won despite suffering a heart attack before the final vote, Berezovsky solidified his relationship with the presidential family, gaining access through Yeltsins ambitious daughter, Tatiana. According to former presidential bodyguard Korzhakov, Berezovsky had won Tatiana�s allegiance with the help of expensive gifts, including two cars a Niva and a Chevrolet. Berezovsky considered himself a privileged person in the Yeltsin family and, apparently, he thoroughly ingrained this understanding in Tatiana, said Korzhakov. It was already pointless to explain to the presidents daughter that its wrong to lobby the interests of a shady businessman. The marriage of money and power was complete. After the elections, Berezovsky�s grip on the Kremlin proved all but impossible to shake. Yeltsin appointed him deputy secretary of the powerful Security Council, a position that allowed him to collect intelligence on his rivals and lobby his business interests. Another tie to the presidents family was consummated when Valery Okulov, the husband of Yeltsin�s eldest daughter, Yelena, took over as head of Aeroflot. After Yeltsin�s victory, Berezovsky and the others in the Yeltsin group felt they deserved rewards for their support and demanded them. Berezovsky boasted that big business had saved Yeltsin and now had the right to take the lead in charting Russia�s future. Berezovsky was credited with helping to cement the peace in Chechnya and in smoothing relations with Georgia and Kazakhstan during a series of shuttle diplomacies. So where does this leave Russia? Some stock market observers say that now is the time to pile into Russian equities and government bonds. Real interest rates of 37 per cent are now the highest in the world. If the Russian Central Bank can hold off a devaluing the rouble, the returns will be huge. In addition, fleeing investors are selling stakes in large industrial companies at discount prices. The first real test this week will be the privatisation of Rosneft, the last remaining oil company in state hands. Bids have to be submitted by 26 May, with the results announced on 28 May. If the government is able to raise the $2bn it is hoping for, confidence will flood back into the economy. And Berezovsky? He looks stronger than ever. He has strong links with all the leading presidential candidates for the 2000 election, barring the former communists, who are his natural enemies. He has openly supported Chernomyrdin and Lebed (see panel, left). Both may run; Lebed looks the best candidate. Even a victory for Yuri Luzkhov, the Moscow mayor, would not be a disaster for Berezovsky. The only person not to mess with in Russia, besides Berezovsky, is Boris Yeltsin, said an analyst. Berezovsky remains confident that his brand of robber baron capitalism is working. "I think that if something is advantageous to capital it goes without saying that it is advantageous to the nation," said Berezovsky. "It is capital that is in a condition, to the greatest extent, to express the interests of the nation." To western ears such remarks sound indelicate but part of Berezovsky�s charm is a certain blunt honesty. His explanation is not merely a justification for his own ambitions; there is a missionary zeal about them: he really believes that a rapid, even painful, transition to capitalism is Russia�s only chance of salvation. To him, therefore, it is self-evident that government should be a servant of big business and do everything to create an environment in which it is safeguarded and can flourish. "The way to continue peace in Russia is without doubt the economic way," said Berezovsky. "We need political will but we also need to take very concrete economic steps. What I am trying to do is to protect the way of reform in the fight we have today in Russia." |