In stark contrast to his mentor, with his hyperactive, restless personality, Abramovich comes across as a chess player, thinking deeply through all the possible permutations on the board. Berezovsky later acknowledged that, of all the businessmen he had met, Abramovich was the best at ‘person-to-person relations’.10
Spotting the young oil trader’s commercial nous, Berezovsky recruited him as a key partner in the Sibneft deal. This conglomerate had been created from four state-owned enterprises: an oil and gas production plant, Noyabrskneftegas; an oil exploration arm, Noyabrskneftegas Geophysica; a marketing company called Omsknefteproduckt; and, most important of all, Russia’s largest and most modern oil refinery at Omsk.
The three partners responsible for the acquisition of Sibneft all played different but key roles. Abramovich assessed Sibneft’s business potential, Berezovsky smoothed the privatization with the Yeltsin administration, and Badri Patarkatsishvili organized half the financing. In late 1995, 49 per cent of the company was sold at auction to the three men through their Petroleum Financial Company, known as NFK. The majority 51 per cent stake was to be held by the state for three years while the lenders were allowed to manage the assets. Under the plan, if the loan was not repaid within three years, legal ownership would transfer to the lenders. In the event, most of the remaining 49 per cent was auctioned a short while later, in January 1996, with control going to Berezovsky and his associates.
When ownership of Sibneft was secured, Berezovsky was already consumed by Kremlin politics and Patarkatsishvili was running ORT. It was thus agreed that Abramovich would manage the new company. According to Berezovsky Abramovich was in essence holding their shares in trust for both the other partners.
October of 1998 saw the deadline for the state’s repayment of the loan; as expected, it was not met. Ownership of Sibneft therefore passed to NFK. By now, Abramovich held, on paper, the lion’s share of the oil giant through various companies. At thirty-two, he was well on his way to becoming one of Russia’s richest men. All decisions during the process of acquisition by the three partners in the deal - Abramovich, Berezovsky, and Patarkatsishvili - were made mostly at meetings at which only the three men were present and no minutes were taken. Nothing was ever formally put in writing and there was little or no documentation. The absence of a paper trail was deliberate - as was so often the way with many of the power-broking deals of the period - and it was partly for this reason that who actually owned what was later to become the subject of a bitter feud between Berezovsky and Abramovich. Many of the deals that forged the transfer of Russia’s wealth were concluded in this way - in shady rooms with no independent witnesses, tape recorders, or documentation, all done on the basis of a handshake. Unsurprisingly, many of these remarkable agreements started to unravel, as the former business allies later became bitter rivals and enemies.
Meanwhile, one of Berezovsky’s oligarchic rivals was an earnest, geeky former mathematician named Mikhail Khodorkovsky. As early as 1989, he was wealthy enough to found his own bank and would also become a billionaire through the privatization of state assets. Mikhail (’Misha’) Borisovich Khodorkovsky, an only child, was born in Moscow in June 1963 to a lower-middle-class family with a Jewish father and a Christian mother. In his early years the family lived in cramped communal housing, though circumstances later improved when his father was promoted.
Khodorkovsky’s nursery school was next door to the factory where his father worked and he remembers climbing the fence with his friends to steal pieces of metal. It was Misha’s dream from an early age to become a director of a factory and the other children at his nursery school accordingly nicknamed him ‘Director’. Khodorkovsky left school in 1981 and read chemistry at the Mendeleev Institute of Chemical Technology in Moscow, specializing in the study of rocket fuel. He supported his studies by working as a carpenter in a housing cooperative and it was at university that he met his first wife Elena, a fellow student.
Their first son, Pavlik, was born in 1985 and the young scientist grimly recalls going out at six o’clock every morning with ration coupons to buy baby food. Khodorkovsky graduated from the Mendeleev Institute at the top of his year in 1996. Although his earliest ambitions to work in defence were thwarted by the fact that he was a Jew, he became the Deputy Secretary of Moscow’s Frunze district Komsomol - the Young Communist League. Like many Komsomol leaders, he used the organization’s real-estate holdings and political connections to profit from perestroika.
In 1986 Khodorkovsky met his second wife Inna and set up the Centre for Scientific and Technical Youth. Purportedly a youth group, the Centre was merely a front for their commercial activities. ‘He dealt in everything: blue jeans, brandy, and computers - whatever could make money,’ recalled a former senior Yukos executive.11 Khodorkovsky and his colleagues peddled new technologies to Soviet factories, imported personal computers, and sold French brandy. Leonid Nevzlin, who became his closest business associate, recalls that all this was done with the backing of the Communist Party: ‘To a certain extent, Khodorkovsky was sent by the Komsomol and the party [into the private sector].’12
By 1987 Khodorkovsky’s enterprises boasted many Soviet ministries as clients, employed 5,000 people, and enjoyed annual revenue of eighty million roubles. Later that year the Komsomol’s central committee gave its organizations the authority to set up bank accounts and raise and spend their own money. Pouncing on this opportunity, the perspicacious Khodorkovsky set up Bank Menatep. The bank soon expanded and by 1990, a year before the fall of communism, it was even setting up offshore accounts, seven years before he hired the lawyer Stephen Curtis.
After Yeltsin came to power, Khodorkovsky soon came to appreciate the value of connections. He started courting senior bureaucrats and politicians, holding lavish receptions for high-level guests at top clubs in Moscow as well as at smart dachas owned by Menatep on the Rublevskoye Highway, the exclusive residential area to the west of the capital. By 1991, he was an adviser to the Russian Prime Minister Ivan Silaev. For a brief spell, he was a deputy fuel and energy minister.
One of Yeltsin’s early market reforms was to end the Central Bank’s monopoly of banking for government institutions. Those entrepreneurs who had already set up banks were well placed to take advantage of this relaxation of the rules. Russia then, as now, was a country where little happened unless a bribe was paid - vzyat or kapusta as it is called in Russian. In the case of the transfer of deposits, it was widely alleged that the banks that paid the biggest bribes to high-level politicians and state officials would receive the wealthiest new clients. And the payments were often deposited offshore. According to Bill Browder, an American banker who set up Hermitage Capital Management, one of the largest funds investing in Russia, ‘These entrepreneurs would set up banks and in many cases would go to government ministers and say, you put the ministries on deposit in my bank and I’ll put five or ten million bucks in a Swiss bank account with your name on it.’13
The paybacks offered entry into the highly lucrative business of handling state money. By 1994, Menatep was responsible for funds collected for the victims of the Chernobyl disaster of 1986 as well as the finances of Moscow’s city government and the Ministry of Finance itself. At thirty-one and by now a multi-national tycoon, Khodorkovsky hired the accountancy firm Arthur Andersen to audit his books and spent $1 million on advertisements in the New York Times and the Wall Street Journal. His office was an imposing Victorianstyle castle in central Moscow with huge bronze letters announcing its presence and surrounded by a tall wrought-iron fence