Business, Finance & Economics

From ostentatious to out of sight


ST. PETERSBURG — Where have all the oligarchs gone?

In the days when Russia was flush with petrodollars, their faces graced every tabloid, their presence was expected at every gala event and their mythical wealth served to boost the pride of a Kremlin keen to cast off the criminal reputation of the 1990s.

How quickly things change.

These days, Russia’s richest men are in hiding, working hard to restructure billions of dollars in foreign debt and avoid increasingly growing public discontent, as factory after factory shutters its doors, putting millions out of work.

“No one has managed to avoid being caught up in the global crisis,” President Dmitry Medvedev said recently, opening an economic forum in St. Petersburg that had become the top event on Russia’s calendar in recent years, drawing CEOs of top Russian and multinational firms, high-ranking politicians of all stripes and parties galore to celebrate the country’s seemingly unending economic boom.

Not so this year, when some 3,500 people gathered under the cold gray skies of Russia’s northern capital in the shadow of an economic crisis that has prompted projections that the country’s GDP will shrink by about 8 percent this year after a decade of steady growth.

Roman Abramovich, the soft-spoken billionaire who made his money in metals and oils, was nowhere to be seen. Last year, his $300 million, 377-foot-long yacht, one of the world’s biggest, was a main tourist draw during the annual forum, anchored in the heart of historic St. Petersburg on the banks of the Neva River.

“He had other commitments,” said John Mann, Abramovich’s spokesman, explaining the oligarch’s absence.

The number of Russian billionaires on the annual Forbes list dropped to 32 this year from 71, and those who managed to make the list still saw their collective wealth drop by $471 billion.

Many of the oligarchs — about a dozen men who made their fortunes buying up cheap industrial assets in the rounds of privatization that followed the demise of the Soviet Union — are struggling to save their empires.

What’s more, they now have to contend with a Kremlin eager to avoid any of the backlash beginning to spread across the country as unemployment and poverty strengthen their hold over Russia’s far-flung regions.

A case in point is Oleg Deripaska, the man who last year was Russia’s richest and this year is contending with the loss of several assets as he seeks to restructure over $20 billion in debt.

Deripaska is the quintessential oligarch: His marriage to the daughter of the chief of staff to the late Boris Yeltsin, Russia’s first post-Soviet president and Putin’s predecessor, consolidating the billionaire’s access to power.

For the past few years, Deripaska indulged in a credit boom that vastly grew his empire, based on the Basic Element holding company, including stakes in metals giant RusAl and truck producer GAZ, which recently linked up with Canadian auto parts maker Magna to buy GM’s Opel unit.

Until late last year, Deripaska owned a 20 percent stake in Magna itself — but was forced to sell as he scrambled for cash to pay back a steady roll of margin calls on the massive debt he had taken.

Now, Deripaska owes much of his financial survival to the state, with RusAl, the world’s second largest aluminum producer in which Deripaska is the largest shareholder, getting $15 billion in bailout funds, the country’s largest gift to industry yet.

So when hundreds of employees at a Basic Element cement plant in Pikalyovo, a dilapidated town of 22,000 about 130 miles outside of St. Petersburg, began to hold sustained protests over the factory’s failure to pay them for three months, the state got angry.

Since the crisis erupted here last autumn, the Kremlin has worked hard to avoid social discontent that could threaten its hold on power, well aware that it was striking miners in Russia’s industrial heartland that precipitated disillusionment with the Soviet regime soon before its fall.

Two weeks after workers in Pikalyovo stormed the mayor’s office, and two days after they blocked a main highway in protest, Deripaska found himself in the distressed town, sitting meekly near a stern-faced Prime Minister Vladimir Putin.

“You’ve made thousands of residents of Pikalyovo hostages of your ambition, your unprofessionalism and maybe your greed. Thousands of people. It’s totally unacceptable,” Putin said.

Putin’s words and tone towards Deripaska resonated widely across Russia, reinforcing the prime minister’s desire — and, seemingly, ability — to exercise near total power over oligarchs and villagers alike.

In 2003, the arrest of Mikhail Khodorkovsky, who was then Russia's richest man and CEO of Yukos, the country's biggest private oil company, signaled to oligarchs the importance of Kremlin approval. With his trip to Pikalyovo, Putin indicated once again that the oligarchs must go the extra mile to make sure Russia's economic crisis doesn't spin out of control, shifting the blame for social unrest or even unhappiness on to them.

“It will be no exaggeration to say that stability throughout the whole country depends on Putin's decisions yesterday,” Moskovsky Komsomolets, Russia’s most popular tabloid, wrote the day after the trip. “Should the signal Putin sent yesterday prove incorrect, protests may cover all of Russia before long.”

Read more on Russia and its neighbors:

"Sex pats" discover Ukraine's alluring women

Political expression in Russia

Where Russia meets the West