It takes times of despotism, when the best and brightest of a country’s elite are obliged to fawn, flatter, and commit crimes to make their fortunes, that a sensitive man discovers that virtues are usually only vices in disguise.
At any rate, that’s what La Rochefoucauld – ducal courtier, failed plotter, brilliant aphorist in the reign of Louis XIV, the Sun King – had to say at the head of the little book of maxims, which summarized everything he had learned in 17th century France.
In modern Russia, there has so far been no one of comparable quality, neither on the throne, nor plotting behind it. But could it be that an entrepreneurial schemer like Roman Abramovich, whose fawning has enabled him to accumulate great wealth, has turned Rochefoucauld’s maxim on its head? Are Abramovich’s vices – his avarice, ostentation, fanfaronade, rodomontade – actually new Russian virtues in disguise?
From the point of view of some in the Russian capital, Abramovich’s readiness to spend his fortune on foreign follies -football games, celebrity in the London tabloids, gold-plated taps in a gold-plated yacht – demonstrates the virtue of leaving Russia’s natural resource assets where he found them, and of not challenging President Vladimir Putin for either the legal right to sell them to foreign shareholders, or the political influence to decide their future. According to one version of the current Kremlin attitude towards Abramovich, he will be allowed to make a get-away with his ill-gotten gains, but only once. His return is barred – unless he were to bring the gains back, and reinvest them into Russia, without the inside trading favors that made the fortune in the first place. According to the same view, Abramovich and his advisors are dreaming, if they think they can vote their substantial stake in the Yukos-Sibneft conglomerate – following the federal prosecutor’s freeze of the Menatep Group’s 44%, this is now the largest unencumbered voting stake – to a private benefit not endorsed by the Kremlin. Frivolity, opportunism, vanity – if these are Abramovich’s personal vices, they have the contemporary virtue of being irrelevant to the future of the country, so long as he accepts that.
If he does not, then there are some questions Abramovich might be obliged to answer regarding his Russian business dealings. One relatively small one, worth no more than $35 million, may be the proverbial drop in the bucket. But then, as La Rochefoucauld also warned, “fortunate people seldom mend their ways, for when good luck crowns their misdeeds with success, they think it is because they are right.” It is just when a Russian oligarch thinks he is right that the federal prosecutor, on instructions from the Kremlin, may pounce on him with an indictment.
When Oleg Savchenko, erstwhile proprietor of the European Bearing Corporation of Moscow, and Deerfield Universal Incorporated of no certain address, recently sold his stake in a remote Chukotka gold-mining tract called Maiskoye, Abramovich apparently was convinced he had done the right thing. For what, or for whom exactly is the question Savchenko has been running from ever since, possibly until a prosecutor catches up with him.
Elected governor of Chukotka on December 24, 2000, Abramovich has been trying to attract investment into the region’s potential assets. Maiskoye was one of them. Located near the 70th parallel, south of the Arctic icepack port of Pevek, Soviet geologists had drilled almost as many holes in Maiskoye as there were people in the region. Digging underground tunnels at Maiskoye was the primary occupation of the area between 1972 and 1986. By that time, Maiskoye was judged to contain between 3 and 4 million ounces of potentially mineable gold. If brought to the surface, refined, and taken to market, that would have a current value today of up to $1.6 billion. But the Soviet state decided the costs of doing that, compared with other gold sources in Russia, was too high. After Soviet economics were replaced by Russian and western ones, many mining companies took a close look at Maiskoye – and came to a similar conclusion. Polyus, the goldminer owned by Norilsk Nickel, told Abramovich (in his gubernatorial capacity) hat it would be next to impossible to earn a profit margin of 20% at Maiskoye, unless the region offset the project’s costs with a number of long-lasting tax concessions. For a margin of less than 20%, foreign miners in the region were even more cautious.
And yet, according to an announcement of September 4, 2003, Abramovich (in his gubernatorial capacity) managed to persuade Ivan Kulakov, chief executive of Highland Gold, a London-listed junior mining company, to pay $34.9 million for the right to mine Maiskoye. The terms of the deal were simple, at least according to the company announcement. Highland Gold – buying through a Cyprus subsidiary called Stanmix Holding Limited – would pay the Maiskoye licence owner, Deerfield Universal (that’s Savchenko) $11.9 million now, and installments of $11.5 million annually over the next two years. On November 4, when Highland Gold announced it had finalized the deal and made the down payment, no other terms or conditions had been disclosed.
For a fellow in the business of ball-bearings, Savchenko appears to have been richly rewarded for his little Arctic trouble. Kuiakov, on the other hand, appears to have paid a great deal for something no one else had thought was worth buying at the price. If this wasn’t a case of snow blindness, then what flash of inspiration had the Governor of Chukotka managed to transmit to the buyer and seller, to bring off their transaction? Manage he certainly did, according to a spokesman for Millhouse Capital (UK) Limited, the holding of Abramovich’s private assets which operates from offices near London. According to Millhouse, two of its executives participated in the sale negotiations. So did Andrei Gorodilov, a deputy governor of Chukotka. Millhouse acknowledges that they all were, or had recently been, employees and business associates of Abramovich. Gorodilov had been a first vice-president of Siberian -Oil Company (Sibneft), Abramovich’s most valuable asset. Although Kuiakov was wearing a Highland Gold hat at the table, and spending Highland Gold’s money, he too had been employed by Abramovich, and had served for a time as a board director at Sibneft.
Savchenko was reported in a Moscow newspaper as saying he had provided his stake in Maiskoye to Millhouse, using a Russian term that can be interpreted in different ways – in trust, for management, as a lien, or for collateral to meet an obligation. According to Millhouse, Deerfield Universal, the company through which Savchenko held title to Maiskoye, and thus the legal seller of the hopeful El Dorado, “is not connected in any way whatsoever with Abramovich”. To the question of how to interpret Savchenko’s characterization of the role Millhouse played in the selling of Maiskoye, the Millhouse spokesman said he was “not exactly sure”.
How willing Highland Gold, and its principal shareholder, the South African goldminer Harmony Gold, were to be the buyer is also not exactly certain. Early in September, Highland Gold was in secret negotiations, described by a witness as frantic, to forestall the loss of its single source of cash, the Mnogovershinnoye goldmine in the Khabarovsk region, several thousand kilometers to the south of Maiskoye. Also, there was insufficient cash in the Highland Gold till to meet a combination of its Moscow bank debts, due for repayment in October and November, and the price it would have to pay at auction for mine equipment at Mnogovershinnoye, which the regional government had scheduled for public auction on September 16. Attempts at fresh bank borrowings at the time were not going well, according to the banks. Did Kulakov have $11.9 million for the first installment on Maiskoye when he was at the table with the sellers? And if he was uncertain he could afford to meet the price of the Khabarovsk auction, why was he ready to compound his financial risk two weeks earlier? What was his hurry? Why would Highland risk paying so much for a non-producing asset, when it was at risk of forfeiting its only source of income?
The Russian oligarchs attract gossip, which exaggerates their influence. The answers to the many questions surrounding the Maiskoye transaction were thus boiled down by investment bankers and mining analysts in Moscow to just one. Abramovich, so the envious wanted to believe, was behind the seller, just as he was behind the buyer. To ensure that the price suited his pocket, he also sat at the table through the Chukotka regional representative, and as the deal mediator, Millhouse.
How wrong the Millhouse spokesman has insisted – how unfair to Abramovich. As La Rochefoucauld observed, the world is full of pots jeering at kettles. Who better, then, to dispel the aspersions than Savchenko the seller? And where better to inquire than at the Moscow office of his European Bearing Corporation? Starting then on September 8, and continuing for nine weeks, Savchenko has been contacted, and questions relayed to him through his secretaries, assistants, and spokesmen. When had he acquired Deerfield Universal, and from what source? Why had he bought a gold prospect if he was in the bearings business? Had he ever done business with Abramovich or his group? What type of transfer of his Deerfield Universal shares had he made to Millhouse, and for what reason? Was he the final beneficiary of the $34.9 million sale of Maiskoye, or someone else?
Savchenko’s business trips out of Moscow have coincided with every attempt at making contact for the answers to these questions. And so, to determine just good the ball-bearings business has been over the past few months, a separate contact was made with his company, requesting a price list for bearings for export to a European destination. That is when Savchenko’s secretary responded: “unfortunately, we are a consulting company, and don’t do direct sales.”
If the title of his company is a misnomer, could it be that Oleg Savchenko are names for someone who doesn’t exist? Those who claimed to be his secretaries, assistants, and spokesmen were asked two fresh questions: How tall is Oleg Vladimirovich? Is running one of his sports? This time the response was: “All questions about the company can be answered by our press service manager, who is currently occupied at a meeting. Usually, we do not disclose personal information about our employees or administration.” Follow-up questioning failed to produce the name of the press spokesman.
Whether his name is as fleeting, or as fictive as Savchenko’s has proved to be unimportant, beside a set of admissions volunteered by Highland Gold’s investment relations executive, Christine Coignard. Speaking from her office in Germany on November 20, Coignard was asked what she knew about the seller of Maiskoye. “The official seller was Deerfield Universal,” she responded. “The person behind it was Abramovich. Abramovich was the beneficial owner and seller.” Asked what form the sale negotiations took, Coignard said they had taken place over “several months”. They were finalized, she said, in direct talks involving Abramovich, Highland Gold’s chairman Lord Peter Daresbury, and Ivan Kulakov, Highland Gold’s CEO. All three “were directly involved,” Coignard confirmed.
She added that, during the negotiations, Abramovich “had two roles, one as a seller, and one as the governor [of Chukotka]. He gave an undertaking regarding the [mining] license. He said he would help renegotiate the terms of the license to make it mineable.” According to Coignard, these were changes that required approval by the Chukotka administration. She said one of the changes Abramovich offered to make proposed to “remove production targets”. While these changes must be effected in written documentation, Coignard added there was another undertaking from Abramovich she was not sure had been put down in writing. This, she said, was that the Chukotka administration would build at state expense a road between the district town of Pevek and the Maiskoye site for all but the last 10 kilometres of the 180-kilometre distance. “So far as I know, this is not a written agreement,” Coignard said, “but it is an undertaking.”
It seems the gossips told the truth. In one of the most wretched of regions, in one of the weakest states of Europe, one would have to be unreasonably jealous to dispute the value that Abramovich’s actions in the matter of the Maiskoye goldmine have conferred on the region he was elected to govern. What but envy could dispute the reward of $34.9 million he persuaded Highland Gold to pay him for doing his public duty? As to the difference between jealousy and envy, why leave it to unlettered prosecutors to probe, when La Rochefoucauld has already explained the difference. Jealousy, the old duke said, “is in some measure just and reasonable, since it merely aims at keeping something that belongs to us, or we think belongs to us. Whereas envy is a frenzy that cannot bear anything that belongs to others.”