The Oligarchs (67 page)

“No!” Chubais said. “I don't agree. Guys, there will be an auction!”

“He got stubborn,” Gusinsky recalled. “He said, ‘We took the decision that the one who pays more will be the winner.'”

Chubais recalled that the tycoons objected to the $1.2 billion starting price, set by the government, for Svyazinvest. “We will never jump over a rope set up by you,” Chubais quoted one of them as saying. “I said, ‘Dear Friends, what you call jumping over a rope is called competition and that's how it takes place everywhere, and that's how it is going to take place here. If you don't pay, you won't get it. The one who pays a ruble more will get it.'”
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Berezovsky recalled telling Chubais he was trying to change the rules too fast. “In the long run everybody wants to get to normal competition, but you can't change the situation in one day!” Berezovsky said.

“Don't dictate conditions to the state,” Chubais replied, tersely.

What really angered Chubais was the way that Berezovsky and the others tried to force him to accept their cunning insider deals. At the memory of Berezovsky's statement to the
Financial Times
about the group of seven controlling half the Russian economy, Chubais flushed with anger. Who did they think they were? “What do you mean, giving this auction to Gusinsky and Berezovsky, and the next one to Potanin?” he asked. Later, he told me, he was thinking to himself, “This means that I was hired by them. They hired me and they are telling me that this goes here and that goes there.” Chubais dug in his heels. No way! He would not be their puppet.

The talk turned sour. Gusinsky again blurted out that if Potanin was in the race, he would make a stink. “I promise that I will stir a scandal,” he warned Chubais. He reminded Chubais that in recent months the “young reformers” had been treated warmly in Gusinsky's mass media. “We were saying that these men are making Russia good. We never wrote badly about them. We were always supporting them. This was editorial policy,” Gusinsky said. But it could change overnight.

“I know that Kokh is playing on Potanin's side!” Gusinsky recalled
protesting to Chubais in France. “And I'm going to prove it.” There would be a big scandal unless Potanin quit the competition, he warned again.

The final warning came from Berezovsky. “In one day, you can't just break the system over your knee,” Berezovsky said. “You are igniting a war. You don't want it, but it is going to happen.”

Chubais walked the angry tycoons down to the waiting boat. Chubais could see trouble brewing. He knew what the big guns were capable of, because a year earlier, during the campaign, he had commanded those same guns. The television channels which had destroyed Korzhakov would now be aimed at him. His image would be smeared, his phones tapped, his movements followed, and the nasty
kompromat
flung in his face every day.

 

The flight back to Moscow was somber. The tycoons felt a sense of impending doom. The gambit to strike a deal with Chubais had failed. Now what? Gusinsky recalled that Potanin actively tried to find a compromise. Starting on the plane and continuing in three more meetings, Potanin suggested that they agree in advance on the price and the terms of a deal, according to Gusinsky. Potanin claimed he did not discuss the specific price. Chubais said he later discovered they had.

The first meeting was at Berezovsky's Logovaz Club. “Massive pressure was put on Potanin to step out of that auction,” recalled Jordan, who was present and stood to reap big commissions in the deal.
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“Potanin almost succumbed to the pressure, but I said, ‘Vladimir, it's too late. I have brought in a consortium of Western investors, including George Soros, and they are not going to tolerate you stepping out now because of some political deal.'” Jordan recalled Berezovsky complained, “Potanin is breaking with us. He's breaking with the way we have run this country for a year and a half. And Potanin is going to destroy this place because of the way he is behaving. These are the rules of the game, and Potanin said no.” Another meeting followed at Gusinsky's office. Still no resolution: Gusinsky wanted to win and Potanin refused to walk away.

The night before the auction, Potanin's plans suffered a setback. One of his investors, Kenneth Dart, the reclusive foam cup magnate who had also invested in Russian oil companies, withdrew his $300 million investment from the Potanin consortium. Jordan covered the
gap, drawing funds from his own firm as well as Deutsche Morgan Grenfell. The deal was hot, and word on the street was that dozens of investors were lined up to put in even more money if Jordan needed them.

The minimum bid for Svyazinvest set by the government was $1.2 billion, but both sides guessed a winning bid would exceed $1.5 billion. The real question in the final days was whether the winner would need to go as high as $2 billion. How much was enough?

On the day of the auction, July 25, at about 3:00 P.M., Potanin and Gusinsky met alone in Gusinsky's office in the high-rise tower. Personally and politically, both oligarchs had staked their all—their reputations—on the deal. In this climactic final face-off, Gusinsky was the more emotional. He had never gotten a single brick or nail from the state, and now it was his turn. According to Gusinsky, Potanin said he was prepared to lose and named a figure he intended to bid.

Potanin denied that he named a figure while in Gusinsky's office. Potanin claimed that he just told Gusinsky to bid high if he really wanted to win. “Don't be relaxed,” Potanin told Gusinsky. Chubais told me that he later learned that in the final Gusinsky-Potanin meeting, they discussed the price they would bid.

Right after Potanin left, Gusinsky recalled, all his partners converged on his office. “Potanin named the figure, but I think he is lying,” Gusinsky told them. He added, “I think we must pay more.” Gusinsky and Friedman were prepared to add another $100 million each of their own money to their bid, Gusinsky said, but with little time before the auction, they suddenly ran into a brick wall. For bureaucratic reasons, they could not get their partner, Telefonica, to approve a higher bid. The Spanish telephone company required board approval, and it would take time. Gusinsky was trapped.

Both Potanin and Gusinsky were also caught up in suspicion and doubt. They worried about leaks and spies. Did Potanin know that Gusinsky could not go higher because of Telefonica? Did Gusinsky know Potanin had lost Dart's $300 million? Did Gusinsky interpret the rumors about the Dart money pulling out as a ploy to lure him into making a lower bid? One of Gusinsky's major investors had his briefcase stolen just before the auction—had the other side grabbed the documents?

In the final hours, the Potanin side pondered the amount of their bid. As planned, the Soros organization and Jordan came to an agreement
on the figure. At the sleek, glass-walled office building of Renaissance Capital, overlooking the Moscow River, managing director Leonid Rozhetskin spread twenty letters out on his desk. The letters were identical except for one number—the offering price for the Potanin-Soros bid. The purpose of the multiple letters was to avoid leaks right up to the last minute. Rozhetskin said he had studied the price Telefonica had paid for Latin American phone systems: $2,000 and even $3,000 a line. After a few phone calls, he picked up the letter with $1.87 billion written on it, which was the equivalent of $850 a line. He felt there was a good chance they would lose, given Telefonica's experience in Latin America.
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But, he consoled himself—this was Russia; Telefonica was in a different market, out of the bounds of its own experience. He put the letter in a standard letter-sized envelope and slipped it into his suit pocket. He summoned a driver and headed to the Federal Property Fund building.

There he saw that Mikhail Friedman had brought Gusinsky's bid to the auction in a large, sealed envelope, inside of which were nested two other envelopes. The Gusinsky team had arranged a press conference and reception nearby to celebrate their anticipated victory. Zverev, the Gusinsky lobbyist, told me he had written a press release announcing that Gusinsky had won and would work together with Potanin. It was never issued.
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When the bids were opened at 5:00 P.M. for 25 percent plus one share of Svyazinvest, Gusinsky offered $1.71 billion to Potanin's $1.87 billion. Potanin had triumphed. Jordan was at home, wearing casual clothes and packing for a vacation, when Rozhetskin called him with the news. “I thought we had lost,” Jordan recalled. “They had a strategic buyer, and I thought they were going to bid more than $2 billion.” He called Potanin with the news they had won. “He thought it was a joke.” Jordan threw on a suit and raced to his office.

With the loss, Gusinsky suffered a severe blow to his prestige, not to mention his dreams of becoming Russia's communications titan. For several days, urgent meetings were held at the White House and the Kremlin in an effort to avert all-out war among the oligarchs. The whole campaign team was thrown into the crisis: Dyachenko, Malashenko, Chernomyrdin, Chubais, and the other oligarchs. At stake was their insular, powerful club, their system, their whole experience.

“The solution was simple,” Chubais recalled. “When I returned from vacation, we spent four or five nights in meetings. We were
working day and night. Their main idea was to cancel the results of the auction and return the property, and then all would be in order.” But, he added, “it was impossible.” Chubais believed the new rules had worked: the Svyazinvest sale had brought in more money than any other sell-off in modern Russian history. Privately, Chubais was thrilled that the market had worked and that the highest bidder had won. Despite the threat of a war among the tycoons, he was not going to reverse the results now.

Perhaps they could not see it at the time, but the tight-knit oligarchy was breaking down and breaking up. Blinded by greed and wounded pride, they failed to listen to each other. Gusinsky and Berezovsky could not imagine that Chubais, once their ally, was serious about changing the rules of the game. Chubais underestimated how profoundly Gusinsky and Berezovsky refused to honor his new rules. Chubais calculated that—just as in Yeltsin's reelection campaign—they would have no choice but to go along in the end. He was wrong; the two offended tycoons went ballistic. They were infuriated that the winner was Potanin, who already had done quite well in loans for shares and was grabbing government cash faster than anyone. Malashenko later recalled that Chubais “started to pump resources into Potanin, you know, to make him the tallest guy of all. And it's like basketball, you cannot play basketball when there is a guy who is three meters tall. And from my point of view, that's what Chubais and Kokh were doing to create this monster out of Potanin.”

The Svyazinvest auction was held on a languid Friday afternoon in Moscow, when traffic on the outbound highways was heavy with city dwellers fleeing for their cool country dachas. The summer news lull had set in. Over the weekend, when most people were hardly paying attention to television, and even as Gusinsky was madly trying to reverse the result of the auction, Berezovsky began firing off his big gun, the cannon of all cannons, Russia's most powerful television channel, ORT. His agent was Sergei Dorenko, a husky-voiced, handsome anchorman with a killer instinct for drama and propaganda. Dorenko had chiseled features, an extremely serious, even solemn look, and a deep, penetrating voice. He met Berezovsky after the 1994 bombing attack on Berezovsky's car, and he later became Berezovsky's most effective weapon on television. No subtle analysis, no cryptic between-the-lines hints were used in Dorenko's presentation. Perhaps because his manner was so brazen yet so self-assured, Dorenko cast a
certain spell over viewers, especially those without a detailed knowledge of what he was talking about, and there were tens of millions of them. Dorenko did his attack-dog pieces not on the regular news but on a special prime-time “analytical” show called the
Sergei Dorenko Program,
which he anchored. The elite sniffed at Dorenko: How cheap! How crude! How opinionated! Kiselyov, while not universally admired, was the darling of the elite, but Dorenko was the master of the masses.

On Saturday, July 26, the day after the Svyazinvest auction, the history of Russian capitalism turned another corner. Up until this day, the oligarchs and reformers had been allies, working together against outside forces, such as Gennady Zyuganov or the “party of war.” But when Dorenko's television show went on the air that summer Saturday evening, the club of tycoons and reformers began to fall apart. The oligarchs and reformers began to fight one another in what became known as the bankers' war. The destruction of the club left the Russian political and economic elite virtually paralyzed.

The first salvo was fired by Dorenko, agent of Berezovsky. His target was Potanin. Near the end of his Saturday show, Dorenko charged that Potanin used murky shell companies in the auction for Svyazinvest; the “profits are going to be siphoned off to an offshore zone.” The investors in Potanin's deal, Dorenko intoned, were “pure speculators,” in the unseemly Soviet sense of petty black marketeers, “people with a scandalous, tarnished-to-doubtful reputation,” who “did not spend a single minute of their life dealing with communications.” He attacked Jordan and Soros, saying the philanthropist was “one of the most famous speculators on the planet,” and declared that Kokh, their patron, “writes the auction terms for his friends.” Dorenko brought Nemtsov into the program too, saying he was “as active as a roach on the wall.” Two days later, in an interview on Gusinsky's radio station, Echo of Moscow, Dorenko expanded on the metaphor. “Haven't you ever seen,” he said, “that when you spray a cockroach with a special irritant it starts running around like mad?” Dorenko was asked whether there was a conspiracy between the government and Potanin. “I did not say conspiracy, but the whole thing smacks of it,” he replied.
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