Entrepreneur In The Kremlin
Throughout 1995, Russia's financiers and entrepreneurs made a mighty push to get their views known inside the government of President Boris N. Yeltsin. To lobby their case on everything from privatization to monetary policy to banking reform, they frequently turned to their most persuasive and well-connected colleague: Vladimir Potanin, president of Oneximbank, the largest private bank in the country.
Now, the 35-year-old Potanin has a chance to push the business agenda from inside the Kremlin. Last month, he joined Yeltsin's government, the first of Russia's successful young capitalists to be appointed to a top post. As one of three First Deputy Prime Ministers and the government's chief economic policymaker, he is likely to ensure that Russian banks and their industrial partners gain in power and wealth. Although he has yet to unveil a detailed reform plan for Yeltsin's second term, Potanin is known to favor such pro-business measures as corporate tax cuts, legal protections for shareholders, and the creation of a stable investment environment (table). Says Mikhail B. Khodorkovsky, founder of Menatep Group, a conglomerate competing with Oneximbank: "Potanin is one of us. He understands what we can do and what we need."
Some key decisions have already gone Big Business' way, a sign that Potanin has been working behind the scenes. On Sept. 1, for example, the government had the option of reclaiming shares of lucrative assets it had sold to banks such as Oneximbank, Menatep, and others last year. The "loans for shares" scheme, which Potanin had lobbied the government to undertake, sparked controversy because banks paid little for stakes in oil fields and metals companies through auctions they managed themselves.
SWEETHEART. But the government let the Sept. 1 deadline pass, so now the banks are free to use their stakes as cornerstones in building financial-industrial empires. Oneximbank got an extra treat: One of its holdings, Norilsk Nickel, was granted $1 billion in tax breaks.
The first postelection privatizations seem tailor-made for insiders, too. Take the Sept. 12 tender for 34% of oil holding company Sidanko. The government's rules require the winner to bid a minimum of $20.8 million and invest $62.5 million into the company. On top of that, the winner must transfer 13% of the shares of Chernogorneft, a Sidanko unit, to the parent company. That virtually guarantees that Oneximbank will win the tender, since it's the only bidder owning the required Chernogorneft shares.
It looks like a sweetheart deal, too. The government has effectively valued the company at $344 million, while Sidanko's pretax profits last year were $482 million. Oneximbank already controls 51% of the company.
The mid-September auction for 19% of Sibneft, a leading Siberian oil company, may also benefit Kremlin business allies. A consortium headed by businessman Boris Berezovsky gained control of 65% of Sibneft's shares last year. As an executive at Russian Public Television, Berezovsky promoted Yeltsin's reelection campaign. Now, Russian market watchers say allies of Berezovsky's group have a chance of winning the Sibneft shares. The tender has been closed to foreigners, and one Russian contender, Inkombank, has dropped out.
Potanin seems likely to push for even more state sell-offs to banks and conglomerates. He favors a German model for Russia's economy, with large, domestic, financial-industrial groups dominating the market. Not everyone in the government agrees with him, however. Indeed, inside the Kremlin walls, a debate about the future development of Russia's capital markets is raging. Anatoly B. Chubais, a reformer who ran the privatization program and who is now Yeltsin's chief of staff, prefers an open, American-style market where investors, both domestic and foreign, are on an equal footing with Russian banks.
Despite their conflicting views, Chubais evidently decided Potanin would be an asset in the government. It was Chubais who pushed for Potanin's appointment. Unlike the financier, other reformers have been ex-Communist bureaucrats such as Prime Minister Viktor Chernomyrdin, or academics like Yegor T. Gaidar and Chubais himself.
Born in Moscow, Potanin started developing his skills as a teenager when he became a leader of the Komsomol, or Young Communist League. He made useful connections in college, attending the prestigious Moscow State Institute for International Relations, the breeding ground for diplomats and top bureaucrats. And he continued to network in his first job, at the foreign trade association Soyuzpromexport.
With friends in high places, Potanin managed to turn Oneximbank into a giant with $3.1 billion in assets in three short years. When the Soviet Union collapsed in 1991, so did Vneshekonombank, the state bank that handled foreign trade accounts. In 1993, Potanin and colleagues from foreign trade associations set up Oneximbank to fill the breach. It quickly received government authorization to sell Russian Treasury bills and a license to operate in gold and other metals. "This young man understands very well that in our country, at least at this stage, business is closely connected with politics," says Andrei Piontkowski, an analyst at Moscow's Institute of Strategic Studies.
No doubt Potanin has been a big Yeltsin booster. He figures that Russian businesspeople owe their existence to Yeltsin and should support him for creating a market economy. Potanin helped the business community marshal millions of dollars in contributions to Yeltsin's recent reelection campaign.
Now that he is on the inside, Potanin bluntly calls himself "a representative of Big Business in the government." Although he has resigned as head of Oneximbank, he was not required to divest any of his stake, which hasn't been disclosed. Russians will be watching to see if he uses his first-hand economic knowledge to benefit the country as a whole or just his business cronies.