http://www.guardian.co.uk/russia/article/0,2763,1212245,00.html

'He won, Russia lost'

Roman Abramovich, Britain's richest man, has lavished millions and millions
upon Chelsea Football Club. Adrian Levy and Cathy Scott-Clark track down the
workers in the oilfields of Siberia who make it possible

Saturday May 8, 2004
The Guardian

Cutting through the ice-crystal air, a warning bell tolls and the
drillmaster hollers, his body swaddled in wool, fleece and fur to protect
him from temperatures that have slumped to minus 40C. "Re-engage," he shouts
into the dead calm of the frozen Siberian tundra as five members of the oil
rig crew, wrestling with grappling hooks, attempt to steady a 50m-long pipe
that thrashes above our heads.
"Keep that steady," the drillmaster bellows, as his men are dragged across
the platform by the writhing pipe, their heavy felt boots losing grip on the
frozen steel of the burovaya, or screw-drill oil rig. There are 180 hours of
labour ahead before these workers return home to Belarus, a three-day
journey south-west. "Concentrate." One momentary lapse and we could all be
crushed by the hundreds of tons of steel suspended above us. Even if we
could ring for help, how long would it take to reach us on the edge of
nowhere, 600 miles south of the Arctic Circle, in what Maxim Gorky called
"the land of chains and ice"?
Finally, the bucking pipe is gripped by the mechanical jaws of a massive
clamp. Steel teeth engage, screeching and sparking, screwing the pipe into
another that connects, segment by segment, two miles into the earth, down to
the hardened bite of a screw drill that is grinding and sucking away at vast
subterranean reserves of crude, black Siberian oil. Three thousand miles and
five time zones away, in the directors' box at Stamford Bridge, south-west
London, a photographer snaps a group of young businessmen in a moment of
jubilation as Chelsea score.
On the right of the frame is Eugene Shvidler, the president of Sibneft, the
Russian oil company that owns the burovaya in western Siberia and 9,999 more
oil rigs like it. Shvidler, his arms thrown up in joy, is now a board member
of Chelsea Village, thanks to an old friend standing to the left, punching a
fist in the air. Britain's richest man, Roman Abramovich, aged 37, last year
famously bought and restocked Chelsea for ?250m; coins in his pockets
compared with the dividends paid him by Sibneft, Russia's fastest growing
energy company, of which he and Shvidler are core shareholders. Cheering
beside them are other senior Sibneft executives, Chelsea Village board
members and representatives of Millhouse Capital, a publicity-shy company
registered in Weybridge, Surrey, that marshals Abramovich and his partners'
interests in some of Russia's most valuable former state enterprises.
On the formation of Millhouse Capital in 2001, Abramovich's lucrative
Sibneft assets sat beside his stakes in Russia's national airline Aeroflot
(26%), the world's number two aluminium producer RusAl (50%), Russia's
second largest automaker GAZ, the Orsk-Khalilovsky Metal Combine, Avtobank,
insurance giant Ingosstrakh, a hydroelectric plant in Kraznoyarsk and the
Ust Ilinsky pulp and paper plant. It is these investments, among others,
that have made Abramovich the 22nd richest man in the world, worth an
estimated ?7.5bn, according to the Sunday Times Rich List. (As an aid to
visualising the scale of this fortune, it is worth noting that in March
banking giant HSBC reported its annual pre-tax profit to be ?7.8bn, thereby
smashing all previous British records.)
No wonder the men photographed at the Chelsea match are cheering: Russian
lads, from humdrum Soviet backgrounds, millionaires many times over by their
mid-30s, now standing in the directors' box, in a stadium they own, watching
their team charging up the English Premier League - and all because of the
breakneck race in the 1990s to create a western-style democracy and free
market for Russia.
From the moment in July 2003 when news broke that a man almost unknown in
Britain had snapped up debt-laden Chelsea, the British public were intrigued
by Roman Abramovich. It was quickly established that he was a member of the
Mayfair club Annabel's, bringing him into contact with the Rothschilds,
Prince Michael of Kent and other influential aristocrats. Abramovich had
spent a reported ?12m on a 450-acre estate at Fyning Hill, West Sussex, for
Irina, his wife, and their five children. He was rumoured to have put Arkady
and Ilya, his two sons, down for Eton.
His unofficial publicity machine provided a few Dostoevskian scenes: his
mother died when he was 18 months old; his father was killed in a
construction accident; the orphan Roman was raised by an uncle in Komi, a
Siberian province that was formerly a hub for the Stalinist gulags. However,
by 1996, at the age of 30, Abramovich had become so rich and politically
well-connected that he had become close to President Boris Yeltsin, and had
moved into an apartment in the Kremlin at the invitation of the Yeltsin
family. In 1999, and now a tycoon, Abramovich was elected governor of
Russia's remote, far eastern province of Chukotka, and has since lavished
?112m on charity to rebuild the impoverished region. The identikit image
being pieced together for us was of a self-made man who was not only
powerful and wealthy, but acutely aware of those who had done less well in
the tumultuous 1990s, when the Soviet Union fell.
In fact, little of substance is known about Abramovich's wealth other than
that he is one of 23 Russian entrepreneurs who took advantage of the
privatisation of Russia's state assets in the mid-1990s. This exclusive
group now controls 60% of the Russian economy, and their combined wealth
amounts to ?44.6bn. Abramovich is the protege of Boris Berezovsky, a maths
professor turned car dealership tycoon, who helped him secure a hold over
Sibneft in 1995 - until Berezovsky fled to Britain in 2000. Russia's richest
oligarch, Mikhail Khodorkovsky, a majority shareholder in Yukos oil, struck
a merger deal with Abramovich last year - although it is now in the hands of
lawyers after Khodorkovsky was jailed pending trial on fraud and tax evasion
charges.
Sharing the same social circle is Ralif Safin, who controls a ?300m stake in
Russian energy giant Lukoil and who last summer was linked to a bid to buy
Manchester United. Oleg Deripaska, Abramovich's shareholding partner in
RusAl, is said to be worth ?820m, while Mikhail Fridman, another of
Abramovich's competitors, has recently made himself even richer by selling
50% of Tyumen Oil to BP for ?3.72bn. But how did Abramovich make so much
money in such a short amount of time? How did one man come to control a
reported ?5.3bn stake in Sibneft, a state energy provider that only 10 years
ago was bequeathed to Russia's citizens, predominantly the tens of thousands
of Soviet oil workers and managers who built the industry?
Abramovich is notoriously coy, and has talked only in the vaguest terms
about the source of his wealth. That is why we have come here, to the crow's
nest of an ice-encrusted burovaya out on the western Siberian tundra, the
start of Abramovich's cash pipeline, to ask his workers how they lost their
share in Russia's oil billions.
And now that the team from Belarus has reconnected the pipe above our heads,
we can feel a pulsing as the rig comes back to life. The arrows on the LED
flow-meter begin to flutter. Oil gushes freely once again: six barrels
filled every minute, 375 an hour, 9,000 a day from this rig alone, grossing
?150,000 every 24 hours for Abramovich's Sibneft, which in the first half of
2003 posted a net profit of ?770m, an increase of 190% on the previous year.
To reach the Sibneft wells, you have to travel a circuitous route. It is not
just a question of geography and meteorology - time zones, thousands of
miles and a subarctic crust of ice. Nor that it is an autonomous region,
physically and politically distant from Moscow. The oilfields of western
Siberia generate one quarter of Russia's wealth, nine million barrels a
day - equivalent to ?166m - making this a hugely sensitive region.
Foreigners can visit only at the invitation of Sibneft or one of its
competitors.
In a windowless conference room in Moscow, within a shout of the Kremlin, we
meet Abramovich's sharp-suited spokesman. John A Mann II is no ordinary
public relations executive, but a veteran spin doctor from the cauldron of
Washington DC, and former vice-president of US PR giant Burson-Marsteller,
the company that represents Ford and Coca-Cola, and has in the past acted
for Union Carbide following the 1984 Bhopal disaster in India and the Exxon
oil company after the Exxon Valdez oil spill. Mann bowls first: "All that
stuff about Roman [pronounced Ro-man] buying up half of London, even Bernie
Ecclestone's place, is complete rubbish." He rocks back in his chair.
"People talk of Roman like he is some kind of mafioso, but he is only
displaying the kind of nous that businessmen champion in the City of
London."
Mann leans over. "Roman doesn't even let me tell half the good stuff. This
weekend, he's spiriting a bunch of poor Russian kids to London to catch a
performance of Mamma Mia. What a PR opportunity, and I have to sit on it.
Roman's changed the lives of 70,000 people in his province, Chukotka. They
used to be starving and now they all have Dolby Surround Sound. Do you think
they're complaining? But for Roman it's not an ego thing."
How did Abramovich come to control Sibneft, we ask. "We don't write anything
about the old days. That's prehistory. If you read our website, you'll see
it was just a question of timely investment and share consolidation." Why do
fewer than 4% of Sibneft employees own shares in the company? Mann is
dismissive: "Roman is just one of our shareholders. We have thousands of
them, including many employees, and we pay all of them dividends every year.
I don't think we have ever said how much Roman personally holds. There's no
requirement in Russia to reveal to you our share register."
Can we talk to Abramovich directly (something we have been requesting now
for four weeks)? Mann chuckles: "I think you just missed him. He flew to
London this morning with some more poor kids from Chukotka. Anyhow, it's a
quiet time right now. No interviews. No headlines." Abramovich is lying low.
Can we go to the western Siberian oil wells and meet Sibneft's workers? Mann
nods. "If you can get yourself to Noyabrsk, our town, we will arrange a
permit. We're really open, not like other companies." Within days, we are
flying east over the Ural mountains and north-west across the great Ob river
towards the Barents Sea.
For three hours, the landscape below barely changes: a frozen cat's cradle
of tracks leading to isolated communities we cannot see. From the air, the
dormitory town of Noyabrsk is a tiny, ice-white blip that is permanently
covered in hoarfrost. We step off the plane and are hit by the juggernaut of
an arctic wind. A shiny new Sibneft people carrier is waiting for us,
purring in the airport car park. Beside it are two Sibneft employees in
black fur shapkas holding a sign: "The Guardian." The gloves come off. We
shake hands. "Welcome to our town," the Sibneft men chorus as ice crystals
clog our nostrils.
Outside the airport stands a Soviet-style concrete obelisk on which an oil
worker wields a raised spanner. But Noyabrsk's old Soviet aura vanishes as
soon as you breach the city limits. Posters wrap up the entire town in
Sibneft's corporate messages, directed at visiting investors and the
company's employees, who make up one third of the 107,000-strong population.
Giant photographs of Arcadian scenes are draped across concrete apartment
blocks. Bees feed from purple thistles. A robin perches on a violet
hollyhock. A butterfly sips nectar among chrysanthemums. But the splashes of
colour sit oddly alongside the monochrome, igloo gloom of Noyabrsk, where
the cold muffles every sound apart from the creaking ice. What is it like
working for Abramovich, we ask our minders? "Well, he's never been here,"
one of them says dismissively. "I thought you wanted to meet the workers,"
the other snaps. "Let's go then."
Two hours later, we skid up to a state-of-the-art complex 70 miles north of
Noyabrsk. Shimmering aluminium pipes lead to a golden flare. With the
assistance of international oil contractors, including Halliburton, Sibneft
has begun to modernise a belching Soviet industry. We leave the people
carrier, and by the time we reach rig five we can no longer feel our hands
and feet. A maintenance brigade dressed in voluminous salopettes, Arctic
mittens and balaclavas is repairing the rig, a geyser of steam and water
shooting up into the air as they pull sections of pipe out of the ground.
"Can we come up?" we shout to the rigmaster.
"Where have you people come from?" he calls back. "London! There's never
been a British person here before. Climb on up." Our minders are not invited
and plod back to the people carrier looking worried. Vladimir Ramazanov, 43,
from the Siberian town of Nizhnevartovsk, is the head of the maintenance
brigade and works out here at -35C for 12 hours a day, 15 days on and 15
days off. He says, "It's a nine-hour bus ride home, but I keep coming back.
I have been drilling for oil for 18 years and can't do anything else.
Anyhow, why are we freezing our balls off out here? I'm going to make some
tea."
Ramazanov slides off the platform and leads us to a fatigued and rusty block
of heated wagons, whose lacy curtains add an incongruous hint of
domesticity. He pulls off his felt snow boots and settles on to a stool,
grinning at us in disbelief with rows of golden teeth. Do Ramazanov and any
of his 18-man crew own any shares in the oil industry, we ask. He explodes
in a fit of choked laughter and lights a cigarette. "We earn now less than
we did in Soviet times. We do earn more than many Russians, the fifth
highest wage earners, but I doubt that any of us still hold shares." This is
not the way it was supposed to be.
On Christmas Day 1991, President Mikhail Gorbachev announced his resignation
and the end of the USSR. A group of economic reformers protected by Yeltsin,
who had been elected president the previous June, began a course of shock
therapy, dismantling the centralised economy. On January 2 1992, prices of
all goods and services were freed, and six months later laws were passed
heralding the immediate privatisation of 80% of state enterprises, from
pencil factories to oil refineries.
On August 20 1992, as the privatisations unfurled, Yeltsin announced that
Russia was about to become a stakeholding society. Every citizen was to be
issued with a voucher worth 10,000 roubles (then worth about ?30, the
equivalent of an average monthly wage) that they could exchange for shares
in the companies that employed them or in any other former state enterprise.
The vouchers could also be invested in savings schemes. To ensure a fair
distribution of wealth, shares in each newly privatised company would be
divided into three tranches, one set aside for the 57 million workers and
managers, another solely for outside investors, and the remaining
controlling interest retained by the state. There would be "millions of
owners rather than a handful of millionaires", Yeltsin pledged. "Everyone
will have equal opportunities in this new undertaking and the rest will
depend on ourselves... The privatisation voucher is a ticket for each of us
to a free economy."
Rigmaster Ramazanov slurps his tea. "We didn't understand the concept of
owning shares, and there wasn't even a Russian word for 'privatisation'.
More educated people took the opportunity." While most Russians grappled
with what to do with their vouchers, Roman Abramovich relished the challenge
set down by Moscow. By 1992, the 25-year-old was already familiar with the
notion of a free market, having taken advantage of the legalisation of
private businesses introduced by Gorbachev in 1987 to set up an oil trading
company. For five years, he had bought cheap Russian oil for a few roubles a
barrel and sold it abroad for a considerable profit. Now Abramovich
allegedly bought up blocks of vouchers from oil workers, converting them
into shares in western Siberian energy companies - there was nothing to stop
him, it was perfectly legal.
The impoverishment of Russia helped Abramovich consolidate his holding.
"After the prices were freed up in 1992," says Ramazanov, "everything went
to hell." The rouble fell on the foreign exchange market from 230 per dollar
in January 1992 to more than 3,500 by December 1994, wiping out most
people's savings. The impact on the population was dramatic. Life expectancy
for men fell from 65 in 1987 to 59 in 1993. The number of suicides rose by
53%, as more than one third of the population slipped below the poverty
line.
In early 1994, stalls appeared in western Siberian towns such as Omsk and
Noyabrsk offering cash in exchange for vouchers that were said by the agents
to be worth no more than a handful of kopeks. Ramazanov says, "Of course
people sold up." Many accused Boris Berezovsky and Abramovich of creating
front companies to run these market stalls, an opportunistic rather than an
illegal operation. Both men decline to comment on the allegation. Ramazanov
continues: "If we had held on to our vouchers and exchanged them for shares,
we would have made a lot of money. We hated President Yeltsin for allowing
us to be ripped off by these New Russians."
Economists who devised the voucher scheme now concede that the trade in them
could have been inhibited if one simple measure had been introduced. Sergei
Vasiliev, a member of Yeltsin's economic reform team and today chairman of
the Committee on Financial Markets in the Federal Assembly, the Russian
parliament's upper house, told Weekend, "If we had issued savings books in
each citizen's name that were non-transferable, speculators would not have
been able to obtain large blocks of shares. But we couldn't afford to print
150 million savings books. One piece of paper, a voucher, was much cheaper."
In July 1994, a Mnenie poll for the Izvestiya newspaper revealed that only
8% of Russians had exchanged their vouchers for shares in the enterprises in
which they worked. At that time, of the 18 men on rig five, seven invested
their vouchers in fraudulent savings schemes, five sold them for cash and
two had not even bothered to pick them up. Only four had bought and held on
to shares. Ramazanov drains his cup. "Below our feet is more oil than we
could ever extract, and massive profits are to be had for decades to come.
Me and my crew will have little to show for it. Don't take my word for it.
Go and see how the guys did down the road."
We skittle along the frozen highway to the neighbouring rig where the
Sibneft team from Belarus are mending a screw-drill rig. One hundred metres
above the drifts, with the broken connection thrashing over our heads, we
ask the drillmaster Valery Novik how he and his team had fared during the
reforms. "The same as most," he says. "We didn't do well. We're not trained
to understand shares and economics. The people who got an education
invariably pulled one over on us. Anyhow, the New Russians were soon given a
nice present by Yeltsin."
By 1995, the majority of Russians were worse off under capitalism then they
had been during communism, and the party began to bounce back. Yeltsin would
have to fight a persuasive and high-profile pro-democracy campaign if he was
to win the presidential election of 1996. He was desperately in need of
funds, and turned to men such as Abramovich and Berezovsky, whom he invited
to participate in the so-called "loans for shares" scheme in return for
financial backing. Yeltsin decreed that the government would auction its
tranche of shares in state enterprises in return for loans to shore up the
fragile economy. Once Yeltsin had been re-elected and the country
stabilised, the loans would be repaid and the state would reclaim its
assets.
In the oil town of Surgut, 250 miles south of Noyabrsk, on the day the
government auctioned its stake in Surgutneftegas, the airport was closed,
the roads blocked by police, and only one bid was received - from Vladimir
Bogdanov, the resident general director of Surgutneftegas. He became a
multimillionaire overnight, and today is worth an estimated ?1bn and remains
the company's president.
The following month, in November 1995, Vladimir Potanin, an influential
banker, snapped up Norilsk Nickel, Russia's largest nickel company, for ?78m
less than the government's asking price. Within months, he had become first
deputy prime minister, and today, although he no longer holds political
office, he is, according to Forbes magazine, worth getting on for $2bn.
Next up was Yukos, Russia's third largest oil company, which was sold for
?173m (a fraction of its real value) to sole-bidder Mikhail Khodorkovsky, a
member of parliament in the Russian duma. Not only had 32-year-old
Khodorkovsky helped draft the "loans for shares" legislation, but his
Menatep bank (which had become wealthy by trading vouchers) also policed the
auction. Today, Khodorkovsky is the richest man in Russia, worth an
estimated ?8.4bn, his portfolio encompassing 40 former Soviet enterprises.
But the true scale of Khodorkovsky's bargain-basement purchase of Yukos
became clear only in October 2003 when, following his arrest, Russian
prosecutors froze 44% of the company's assets, revealing that they were
worth more than ?7bn.
And then, in December 1995, four oil exploration, drilling, refining and
distribution companies in Noyabrsk and Omsk came up for auction, in a deal
that would see them combined into a holding company to be named Sibneft. A
confidential financial analysis by a leading Russian brokerage firm, seen by
Weekend, along with a deposition made by a state parliamentarian last
October to the Russian prosecutor general, allege that the Sibneft "loans
for shares" auction was rigged. Yeltsin authorised Neftyanaya Finansovaya
Kompanya (NFK), a company closely linked to Kremlin insider Boris
Berezovsky, to manage the auction of 51% of Sibneft. But despite the winning
highest bid having come from Uneximbank, which offered approximately ?230m
for 51% of Sibneft, Russian critics were amazed to see Finansovaya
Neftyanaya Kompanya (FNK), a barely disguised relation of NFK, the company
that had managed the sale, winning the Sibneft shares with a lower bid of
?117m for assets valued at ?337m. A legal action against FNK was launched
and then abandoned, after Uneximbank inexplicably withdrew its complaint.
FNK was then revealed to have been another Berezovsky affiliate company that
was also connected to his new partner, a 29-year-old oil trader called Roman
Abramovich. Sibneft spokesman Mann says: "FNK won an auction to purchase 51%
of Sibneft. The other 49% was privatised during a series of competitive
auctions beginning in January 1996."
Yeltsin won the presidential election, financed by a private war chest of
?140m in donations made by the new oligarchs. Two years later, FNK was
allowed to keep its 51% share in Sibneft after the government announced it
would not be repaying its loans. Abramovich and Berezovsky now owned a
controlling share in an oil company whose reserves of more than four billion
barrels were equivalent to those of Texaco, Chevron and Mobil. By
comparison, the average oil worker's wage was ?1.90 an hour, making an
18-man crew worth ?75,000 a year, the sum of their combined salaries.
Drillmaster Valery Novik rolls his eyes and says, "We are too busy running
these rigs, working back-to-back shifts, seven days a week, to worry about
what the bosses get up to." Abramovich and Berezovsky now began to
consolidate control over their share in Russia's former state enterprises.
Noyabrsk is sheltering under a thunderous snow sky. Vicious flurries that
Russians call bozyomkas slice down the streets, sweeping a lone dog off its
feet. The town is deserted because no one wants to battle with the weather
on these kind of mean days.
Another Sibneft minder sits with us in the people carrier taking us to the
satellite town of Muravlenko, three and a half hours to the north-west. No
one talks as the driver nips in between brutal articulated lorries that
hurtle along the iced highway.
"You're only here because Roman Abramovich is richer than your Queen," the
minder pipes up at last. "I read it in our newspaper." We laugh, but the
minder becomes distracted by a giant poster of an oil worker that flashes
past the window. "The man you are about to meet," he says, pointing, "one of
Sibneft's most productive employees."
Muravlenko is rougher around the edges than Noyabrsk. On the fifth floor of
a wooden-clad apartment block, Vladimir Sterhov invites us in. His face has
a beaten-up quality, quite different from the youthful image of him on the
billboard. Gulnara, his wife, beckons us into their kitchen with a bottle of
honey whisky made by her in-laws in Bashkortostan.
For five minutes, we politely discuss Sterhov's embarrassment at seeing his
face on an advertising hoarding. But when we ask if he has any Sibneft
shares, Sterhov becomes agitated. "I have no shares in anything. Tell me,
will anyone censor what you write? If not, I have nothing to lose by telling
you the truth. There is a saying that there is no exile further than the
north, and I am already here for life."
The Sibneft minder shrugs his shoulders and Sterhov continues. "After
Abramovich won the 'loans for shares' auction in 1995, we became Sibneft
employees and the company stopped our wages for two, three, four months at a
time."
The Sibneft minder nods vigorously. "It's true. That's right," he says. "Our
wages were held back." Sterhov continues: "Sibneft said it couldn't afford
to pay us. The country was heading for another financial crisis, and by
August 1998, when the economy collapsed for the second time, people here
were desperate. Then Sibneft started saying that although it couldn't pay
our wages, it would buy any shares left over from the privatisations of
1992."
Company shops sprang up in Noyabrsk and Muravlenko, where the Sibneft shares
were accepted instead of money. "Food, fridges, anything," says Sterhov - a
claim that would be repeated by many Sibneft employees we interviewed in
Muravlenko and Noyabrsk. This was not the only way that Sibneft ended up
with the bulk of the shares. An account of Sibneft's complex financial
manoeuvrings, produced by Russian analysts and seen by Weekend, confirms
that in August 1997 Sibneft issued 45 million new shares in one of its most
profitable subsidiary companies.
Core shareholders such as Abramovich and his partners were able to increase
their stake in this subsidiary from 61% to 78% in this closed share issue.
As a result, the shares belonging to workers who had bought into the
subsidiary in 1992 were watered down and significantly dropped in value. The
Sibneft workers launched a futile legal action while the ?168m in extra
revenue raised by the share issue was used by Sibneft to settle tax
liabilities.
Christopher Granville, chief strategist of United Financial Group, a
brokerage in London, told us, "Sibneft's minority shareholders were
completely ripped off. The new shares were a closed subscription offered
only to core shareholders." The Sibneft minder sitting beside us chips in.
"My shares plummeted in value, along with everyone else's, when the 1997
closed share issue was announced."
Lord Richard Layard, co-director of the Centre for Economic Performance at
the LSE and an economic adviser to the Yeltsin government, said that this
strategy was possible due to loopholes in company law. "Most Russian
companies did not issue share certificates. The only proof of ownership was
a shareholders' registry, quite often a handwritten book that was held by
the company.
In some cases, the records of a shareholder's ownership were simply crossed
off this list. In other cases, firms issued new shares, free to some of
their shareholders, without informing the others."Mann responds for Sibneft:
"Any registrar system based on people, pen and paper is open to human error
but Sibneft has never had a policy of crossing shareholders off its
registry."
By 1999, Sibneft's most productive worker, Vladimir Sterhov, was struggling
to feed his family on a monthly salary that sometimes dipped as low as ?112.
Abramovich and his core shareholders had bought out Berezovsky, and through
a new series of auctions won control of 97.2% of Sibneft.
The following year, the company began paying dividends that broke all
Russian corporate records: ?28m in 2000; ?552m in 2001; ?612m in 2002; and
?696m last year, of which ?640m went to Abramovich and his fellow core
shareholders (who by now included Eugene Shvidler and Kenneth Dart, a
carpetbagging Styrofoam cup billionaire and resident of the Cayman Islands).
Vladimir Sterhov takes a sip of honey whisky: "In Russia, a lot has changed.
We workers are now the small people and we do not matter." Sergei Rusakov,
Sibneft's chief engineer and deputy director of regional operations in
Noyabrsk, denied that his employees had been ripped off: "I've been here
from the beginning and I bought shares in 1992. I'm still a minority
shareholder and I do very well. I don't dispute that a lot of employees no
longer have shares. But it's not in a Russian's character to dwell on what
has been lost. Those who sold their shares or vouchers didn't lose out
completely. They bought apartments and cars and fridges, and at the time
they did this they thought they had a good deal." None of them, however,
owns football clubs, country mansions or multimillion-pound yachts moored on
the C?te d'Azur.
No one in Noyabrsk will say that it was better in the old days. Remarkable
things were achieved in Russia during the transformation period. More than
106,000 state enterprises were privatised in two years. But the free market
has cost the average citizen dear. While there are 23 resident billionaires
in Moscow - a figure topped only by New York, with 31 - Russia's per capita
gross domestic product is now less than that of Costa Rica. This may simply
be evidence of the acquisitive skills and greed of the new owners of Russia,
but in a recent poll cited by the World Bank, 80% of respondents said that
they believed the oligarchs had made their fortunes dishonestly.
Among the most embittered are the families who founded towns such as
Noyabrsk. Mikhail Karpenko, who lives here in a small fourth-floor apartment
with his wife and youngest daughter, says, "I arrived in 1974 when I was 20.
I volunteered. Came here on a Komsomol ticket, in search of something new
and patriotic." Komsomol was the Communist youth movement and Karpenko was
part of the advance party of engineers and geologists sanctioned by the
Supreme Soviet in Moscow to find oil and gas. "We wanted to help build a
future for the Soviet Union."
In March 1980, while Abramovich was still at school in Komi, the Soviet
government adopted Resolution 241, announcing "urgent steps to accelerate
construction in the western Siberian oil and gas complex". Lubov Karpenko
joined her husband to help build Noyabrsk out of sheet metal and timber. She
hands us a well-thumbed photo album. "That's me," she says, pointing to a
row of young female pioneers in knee-length leather boots and miniskirts.
Mikhail says, "We were heroes of the USSR. We lived in a heated truck with
one other family, a curtain dividing us. My daughter Nastya was the 60th
child of Noyabrsk."
He produces a box of bronze and silver medals for Communist Labour and
Labour Glory. "When the changes in Russia began, I embraced them. I bought
shares in the gas industry. I still have them. However, very few of my
colleagues who bought shares in Sibneft still have them."
His cheeks colour. "Abramovich never spent his nights in the back of an oil
fire-heated truck. He never assembled the rigs when a gusher was struck or
helped carve out the rail tracks and roads that brought in more labour. But
he did scoop up the shares of those too poor and uneducated to appreciate
their potential value. He did hustle thousands more out of their stake in
Russian oil as the economy collapsed around them. He won. Russia lost."
However, not everything is going Abramovich's way. Although Sibneft
cancelled its merger deal with Yukos last October, Yukos refuses to let go
and threatens to swallow up Sibneft or suffocate it in lengthy litigation.
The Russian authorities have recently served Sibneft with two bills for
unpaid tax totalling ?797m.
New oil export duties set to take effect in August, combined with an oil
extraction tax that will come into effect next January, will raise an extra
?1.68bn in revenue for the state, while shaving 3% off Sibneft's earnings
forecast for 2004.
Abramovich's acquisition of Sibneft is also under scrutiny. Last December,
the audit chamber of the Kremlin announced that it would review all
privatisations of the past decade. Included is a dossier of allegations
presented to the Russian prosecutor general by Vladimir Yudin, deputy
chairman of the State Duma's committee on economic policy and enterprise,
who claims that 51% of Sibneft was sold off in a "fake auction" in 1995, the
winner having been chosen in a "premeditated agreement".
There have been no findings yet, but President Putin has issued a warning to
all of the oligarchs: "Those who were involved in deliberate fraud must not
enjoy more favourable conditions than those who did the right thing and
abided by the law."
Meanwhile, the new tycoon from the old bloc has been quietly securing his
position in Britain. Buying Chelsea has internationalised Abramovich's
reputation and he has also begun severing his business ties to Russia. In
March 2003, he sold his shares in Aeroflot and in October off-loaded 25% of
his stake in RusAl. Both Shell and Total are rumoured to be negotiating with
Abramovich to buy a ?2.5bn stake in Sibneft. Abramovich has already said
that he will not stand again for the governorship of Chukotka.
Far out in the roadless tundra stands a wigwam, or chum, made of animal
hides, a curl of smoke rising from its chimney. A snowmobile has towed us
here, three of us sitting inside a tin sledge, to meet the original
inhabitants of the western Siberian oilfields. We are 100 miles north-west
of Noyabrsk but, with its icicle-white reindeer and forests of birch trees,
it feels as if we have travelled back in time and into a Russian fairytale.
The kettle is on, Nadezhda says, inviting us inside her chum.
As the ice for tea melts, Nadezhda's son Pyotr tells us how their ancestors
from the Nenet tribe had herded reindeer across these snow plains for the
past thousand years. "Can I ask a question?" he says. "Sibneft people came.
They are paying us 14,000 roubles [?280] a year in compensation for the
damage done to our land. A share in their profit. Is it a good deal?"
Nadezhda frowns. "The trees are dying. In the summer, the fish float up dead
in the river. The reindeer are sick." The ice fizzles in the teapot. "Once,
we thought our world was so large. You could ski for miles and never see a
chum. Now, the oil rig flares are getting nearer and Sibneft tells us we
have to move." The sun dips, turning the Siberian tundra blue. The only
things that can be seen on the horizon, apart from a net of gleaming stars,
are orange ribbons of fire spurting out from the Sibneft wells that are
strung across the frozen desert like pennants of profit.
The Sibneft perspective
John Mann II, spokesman for Abramovich and Sibneft, said: 'It is very
important that you understand the distinction between Roman Ambramovich,
shareholder, and Sibneft the company. Mr Abramovich held positions in the
company only in 1996-1997, when he was head of the Moscow representative
office and a board member. Furthermore, while he is now among our largest
shareholders, he is not the only one. Everything Sibneft is not everything
Abramovich (and vice versa). The company has its own management team.'
In response to questions about the withholding of salaries by Sibneft and
the establishment of share shops, Sibneft responded: 'In the upheaval of the
mid-1990s, you were lucky to go only two to three months between pay cheques
at any major industrial enterprise in Russia, so it would be inaccurate to
make a correlation between pay deals and privatisation.'
Mann declined to answer questions about the legality of the 'loans for
shares' auction of 1995, or about the August 1997 share dilution row that
was contested by employees.
© Adrian Levy & Cathy Scott-Clark, 2004