For two decades, Russia has been trying to build a 3,000-megawatt power plant deep in the heart of Siberia, pouring more than $1 billion into the project. Now just half finished, it needs that much more to be completed.
So along came Russian mogul Oleg Deripaska, who made a deal to provide a $10 million loan to keep the project alive. If the money were not repaid -- and the unfinished Boguchansk plant generates no revenue to repay debts -- he would receive up to 25 percent ownership in what may ultimately be a $2 billion facility.
Deripaska, the aluminum king of Russia, called it a reasonable arrangement to save an important project while also protecting his investment. To critics, though, it echoed the worst of the schemes of the 1990s -- known as loans for shares -- in which emerging Russian oligarchs seized control of lucrative state assets for a fraction of their value.
Two years after President Vladimir Putin took office, the wealthy Russian oligarchy he vowed to dismantle is alive and well. During his presidential campaign, Putin boldly declared that "the oligarchs will cease to exist as a class," yet with few prominent exceptions, the tycoons have prospered and even consolidated their holdings.
Under Putin, just eight oligarchic clans now control 85 percent of the value of Russia's top 64 private companies, according to a study; the combined sales of the top 12 private companies alone equal the revenue of the government. Just as under former president Boris Yeltsin, oligarchs get richer while sometimes swindling minority shareholders and manipulating a pliant court system in battles for domination of the country's most precious economic resources.
"Under Yeltsin there were oligarchs, and under Putin there are still oligarchs, and in principle nothing has changed," said Alexei Zudin, an analyst at Moscow's Center for Political Technologies.
If anything, the oligarchy has grown, adding a new generation of rising titans with overflowing bank accounts and swaggers to match.
At 34, Deripaska has amassed a fortune estimated at $1.5 billion, making him one of the seven richest people in Russia. A crafty, hard-knuckled player sometimes accused of ruthless tactics, he controls the world's second-largest aluminum company and the country's second-largest automaker. Lately he has tried to muscle his way into the timber industry as his allies sought to overturn a governor's election in resource-rich Siberia.
In an interview at his polished Moscow offices, Deripaska, wearing a black shirt, black sports coat and blue jeans, defended himself and the evolution of oligarchic capitalism. While business interests still fight it out, he said, these days they employ more legitimate tactics. "It's a legal fight," he said. "And it's not bad that in some areas and some industries there is consolidation. It brings stability."
Stability has been the watchword of Putin's tenure. Rather than eliminate oligarchs as a class, Putin has institutionalized them and, to an extent, tamed them into more seemly behavior. Instead of giving favorites the run of the Kremlin, as Yeltsin did, Putin meets with oligarchs as a group on a regular schedule with fixed agendas. The epic battles of the 1990s have morphed into more polite, less violent, though still fierce contests.
"It's as intense as before -- there's no big change. It's less criminal than before," said Peter Aven, president of Alfa Bank and a minister in Yeltsin's government. Under Putin, the oligarchs are free to assemble great wealth as long as they stay out of the political arena. "He wants business to make business and not to do politics. Politics is not as much on the agenda as before."
The oligarchs emerged from the ashes of communism a decade ago as the nascent Russian government began privatizing state-owned industries. In the rush to tear apart the old state and build a market economy, Yeltsin's reformers sold off assets for rock-bottom prices. Some of the more entrepreneurial Russians -- and some of the more crooked -- snatched up oil wells, mines and factories and siphoned off vast amounts of cash to foreign banks.
For a time, it appeared that these magnates were running not just banks and factories but Yeltsin's Kremlin, especially after they helped reelect him in 1996. Putin, although he was Yeltsin's hand-picked successor, tapped into popular resentment and initially appeared eager to take on the oligarchs, launching investigations into the two most outspoken, Boris Berezovsky and Vladimir Gusinsky, and driving them out of the country.
But he stopped there, making clear that only those who challenged him would face trouble. What emerged was a mutual non-aggression pact.
"The agreement is we're not getting involved in politics, we're in economics," said Igor Yurgens, vice president of the Russian Union of Industrialists and Entrepreneurs, the association of oligarchs. "And the other side is, he's not really involved in the competitive [business] fights."
Aides to Putin said the perception that oligarchs do not own the Russian president has loosened their grip on the rest of government as well. In the past, said a Kremlin official, "bureaucrats were afraid to refuse because they thought, 'If I refuse, the oligarch will go to Yeltsin and Yeltsin will fire me.' And now that's not the case. The oligarchs economically can still buy bureaucrats, but bureaucrats aren't afraid of them. That's a very important difference."
The oligarchs, however, still have a place at Putin's table through Yurgens's union. Every three months, two dozen of them troop into Catherine Hall at the Kremlin for tea with Putin. They include Deripaska, oil kingpin Mikhail Khodorkovsky and banking titan Mikhail Fridman. Putin brings his chief of staff, Alexander Voloshin, and prime minister, Mikhail Kasyanov.
The group dynamic has formalized the relationship in a way that encourages discussion of broader issues rather than personal lobbying, Yurgens said.
Even by Yurgens's account, though, the oligarchs maintain great sway over issues affecting them. They won corporate tax cuts and shaped Putin policies on banking, bankruptcy and deregulation. "I would say 70 percent of the time, when the position is clearly put together, he says yes," said Yurgens. "In 30 percent, he says, 'No, no, no, it's too early, it's in the interest of big business, not in the interests of the country.' "
The bottom line for many oligarchs has been a more secure environment. Assured that Putin will leave them alone, they have expanded their fiefdoms. Many have brought home money that had been spirited abroad and begun investing in their companies; capital flight is down a reported 80 percent. Instead of quick profit, many now look to the future and aspire to respectability, adopting Western-style accounting and corporate rules.
"They've reined in themselves," said Peter Boone, research director at Brunswick UBS Warburg brokerage. "We certainly see it in the companies we deal with."
In a study, Boone and analyst Denis Rodionov concluded that oligarchs have tightened their hold on Russia's economy. At the same time, they found, the 10 largest private companies now want to list shares on international stock exchanges and most want to sell strategic stakes to foreign buyers or become international players themselves.
None of this, however, has stopped backroom dealing and back stabbing. While not as extreme, tales persist of oligarchic looting. In recent months, for example, rival groups have battled for control of Slavneft, among the largest remaining state oil companies, by deploying squadrons of security guards to oust opposing management teams.
Putin generally stays out of such fights. But Slavneft soon will provide a major test of his willingness to enforce new rules. On Wednesday, the government will auction off its 75 percent share of Slavneft in the largest privatization of the post-communist era.
From the start, one thing will be different -- the purchaser will pay what the company is worth. The government set a $1.7 billion minimum, just shy of the $1.76 billion value estimated by United Financial Group. Among the bidders: Sibneft, Surgutneftegaz, Tyumen Oil Co., as well as China National Petroleum Co. Sibneft's Roman Abramovich, a politically connected oligarch, has long eyed Slavneft; a Sibneft executive won the recent management battle and last week Sibneft bought 10.8 percent of Slavneft held by Belarus for $207.5 million. The question is whether the fix is in at the Russian auction.
Another important case will reach a pivot point the same day when parliament takes up legislation restructuring Russia's electricity monopoly. Anatoly Chubais, the former acting prime minister and now chief executive of Unified Energy Systems, wants to break it into private companies to create competition and attract investment to upgrade Russia's woeful electrical system.
But critics complain Chubais, architect of the 1990s loans-for-shares privatization, wants to repeat history by giving away valuable property. Exhibit number one is Deripaska's deal with Chubais on the Boguchansk plant in the Siberian region of Krasnoyarsk. "We think he's cut deals with all the oligarchs," said William F. Browder, head of Hermitage Capital Management, a minority shareholder in Unified Energy Systems.
Deripaska said he made the power plant loan agreement because the aluminum industry needs power and without him the plant would never be completed. His small cash infusion was meant just to get through winter. "I can find thousands of opportunities that would give a much higher return," he said.
To defuse criticism, Chubais postponed asset sales and deals such as Boguchansk. "Some of our opponents are trying to use this natural anxiety [over reform] to create a problem for us," said an adviser to Chubais, Leonid Gozman. "The only thing we can do is be as open as we can."
The issue inevitably will reach Putin, who has been characteristically hard to read. Browder assumes Putin ultimately will order Chubais to reverse course. "Putin is clearly acting in the interest of the state. He's not acting on behalf of the oligarchs," Browder said. "He sometimes lets these things drag out longer than he should. But at the end of the day he does the right thing."