THE SIGNIFICANT RISE in Putin’s political position alongside Sobchak meant that he now had to hire a secretary. He found one in Marina Yentaltseva, who initially thought she had blown her chances when Putin spotted her putting on lipstick before her interview. ‘He pretended he hadn’t noticed a thing,’ she says, ‘and I never put my lipstick on at work again.’
Next, his employers paid for him to have English lessons two days a week, as English was the lingua franca of the commercial world, and he was now required to mix with international businessmen.
At this time, St Petersburg’s foreign trade was dominated by state monopolies and huge government-authorised companies like Lenfintorg (Leningrad Finance and Trade). The usual aids to mercantile intercourse between nations such as a customs service, independent banking facilities, currency exchanges and a stock market simply didn’t exist. Starting virtually from scratch, reformers like Putin had to create an environment in which Russians could do business deals with the marketbased West.
MANY OF THE people on Putin’s committee at that time have remained with him throughout his career. Dmitry Medvedev, his nominee and successor as president; Alexei Miller, CEO of Gazprom; Igor Sechin, Kremlin chief of staff, and chairman of Rosneft, and Vladimir Churov, chief of Russia’s Central Electoral Commission, the main elections organiser. ‘Dima’ Medvedev advised Putin on the registration of foreign joint ventures in which the city participated (a practice that was later discontinued as representing a possible conflict of interest). A senior banker who worked closely with Medvedev at Smolny notes: ‘The work he was doing for these guys as a legal adviser solidified his relationship with Putin’.
Medvedev too had been raised in St. Petersburg, but unlike Putin he came from an academic family. His mother Yulia taught Russian and literature at the Hertzen State Pedagogical University, while his father Anatoly was a physics professor at Leningrad State Polytechnic. As a schoolboy, Dmitry Medvedev worked on a construction site in order to pay for blue jeans and foreign records; he had saved for months to buy Pink Floyd’s anarchic album ‘The Wall’, and listened to lectures on the evils of Stalinism by historians who were finally free to express their opinions.
Albert Stepanov, a tall, slim bureaucrat who spent the best years of his life in the service of his country, remembers Putin in those early days. ‘He was very self-disciplined,’ he says over dinner at the Sovietsky Hotel in Moscow. ‘He put himself under great pressure – he’d be in his office until around 10 at night and was a bit of a machine. His one fault was that he was always late. For him, the clock does not exist. That made him rather a hard taskmaster and there was very little socialising. We didn’t go out for beers or anything like that, although I did go to his home on a few occasions to take his daughters to their music classes.’
One consequence of the failed August coup was that Sobchak moved his office from the Mariinsky Palace to Smolny. Putin’s life became so hectic that he made Albert Stepanov his trusted signatory. ‘There were lots of papers to sign – about 10,000 in four years – and he couldn’t sign them all,’ Stepanov says. ‘And anyway, his signature was a squiggle that no one could decipher – as president, he’s had to work on that – so I was given a letter by him authorising me to sign on his behalf. I still have it.’
Ironically, Sobchak’s trust in Putin was such that he refused to sign any document unless it already bore Putin’s signature. Sobchak was frequently away from the office on business trips and on one occasion had signed three clean sheets of paper and left them with Putin in order to clear up various administrative matters while he was away.
That same evening a couple of Putin’s KGB colleagues visited him. They said it would be very handy for them to have Sobchak’s signature on a certain document. Could they discuss with Putin how it might be obtained? Putin realised that he had to act quickly to head off a potentially compromising situation. He took out a folder and showed the agents the blank sheets of paper with Sobchak’s signature to prove that the Mayor trusted him completely. Then he said to them: ‘What do you want from me?’ The KGB men backed down. ‘No more questions,’ they said and left his office with an apology.
These were heady times. After 70 years of Communist dictatorship, newspaper columnists were giving readers the benefit of their uncensored opinions, political prisoners had been freed from the gulags, Russians could get a passport to travel abroad, voters could choose from a dozen political parties, and 89 regions and ethnic republics of the Russian Feder ation had gained their independence from direct Kremlin rule.
If Putin had reservations about this sudden outbreak of liberty, he kept them to himself. Nothing, however, could disguise the fact that despite the Herculean efforts of Yeltsin’s young reformers, Russia was almost broke. The previous Soviet government had run up foreign debts of $72 billion and there was virtually no money with which to pay the interest. The nation’s storehouses contained just two months’ supply of grain. Producers refused to sell their crops to the state at regulated prices. The shelves in most shops were bare and there was no money to replenish stocks with imported food. So Yegor Gaidar took the necessary steps to abolish price regulation and allow free trade.
IN A WAVE OF ‘shock therapy’ measures, Gaidar slashed subsidies to inefficient state industries, cut the armed forces budget and temporarily lifted import restrictions. From midnight on 2 January 1992 prices were allowed to find their own level. They went up and up, wiping out people’s life savings but stimulating trade. There were mass protests from the old guard. Boris Yeltsin’s vice president, Alexander Rutskoy, a former general in the Red Army and veteran of the Afghan war, denounced Gaidar’s policies as ‘economic genocide’, heralding the start of a roller coaster ride for the Yeltsin government. Bowing to pressure, Yeltsin sacked Gaidar and replaced him as prime minister with the conservative Viktor Chernomyrdin, former head of the state oil and gas colossus Gazprom.
PUTIN PUTIN’s favourite holiday resort of Sochi will benefit not only from the Winter Olympics in 2014, in the same year it will also be the venue for the first Formula One event in Russia under the terms of a six-year agreement with racing boss Bernie Ecclesone (pictured centre) and oligarch Oleg Deripaska.
In June Yeltsin visited the United States and Canada and caught the public imagination with his deep rumbling baritone, electric blue suits and impassioned speeches on behalf of his embattled regime. The Americans impressed on him that it was absolutely vital to keep the reforms going if he was to activate desperately needed loans from the International Monetary Fund (IMF).
Yeltsin needed no prompting. During his term as prime minister, Gaidar had convinced him that only the speedy transfer of state assets into private hands would break the Soviet stranglehold on the economy and prevent a Communist revival. At their headquarters in a Stalinist skyscraper at No 21 New Arbat, Anatoly Chubais and his St. Petersburg economist chum Dmitry Vasiliev, small of stature but big on ideas, worked out an ingenious voucher scheme that would privatise thousands of state-owned companies.
In August 1992, on the first anniversary of his moment of glory outside the White House, Yeltsin, who had little idea of economics, announced that every Russian citizen born before 2 September that year would be issued with a voucher nominally valued at 10,000 roubles ($25) which could be traded for equity in a large number of small and mediumsized businesses. Millions of Russians paid a small registration fee to receive their vouchers but then sold them to speculators and the so-called ‘red director corps’, the managers who ran state-owned factories.
The first Soviet enterprise to be privatised was the Bolshevik Biscuit Factory, a symbolic choice, which went under the auctioneer’s hammer in a vast exhibition hall on the Moscow River on 9 December. The factory’s managers and employees retained 51 per cent of Bolshevik’s stock, so would-be tycoons armed with sack-loads of vouchers competed against one another for the remaining 49 per cent. Even so, the sale of Bolshevik Biscuits raised just $654,000, which made it an absolute bargain for the stockholders.
Up to 600 plants a day were sold off at bargain prices – even the shipyard in Komsomolsk-na-Amure, which had once been a secret installation producing the country’s nuclear submarines.
It was an inauspicious start, but the public soon got the hang of it. The first phase of privatisation picked up speed in 1993, continued through 1994 and finally ran out of steam at the start of 1995. Not counting small businesses such as retail shops, more than 18,000 companies had been privatised and Chubais had succeeded in turning 40 million ordinary Russians into stockholders.
On the first anniversary of Vladimir Putin’s appointment as Chairman of the Foreign Relations Committee, there was a small celebration at Smolny. ‘Everybody got a baseball hat and a T-shirt with his name on it and a nice message about him,’ says Albert Stepanov. ‘He came in and had some cake and admired the T-shirts. Now a lot of people in his position would not have allowed [such informality].’
With Putin’s post came membership of a small group of men who met regularly at a house on the shores of Lake Komsomolskoye (named after the Komsomol), some 60 miles north of the city. The group called themselves Ozero (meaning ‘the lake’) and Putin took Igor Sechin and Dmitry Medvedev along with him. ‘Sechin used to sit in Putin’s outer office as a very junior factotum,’ says a senior British diplomat. ‘People who knew him in his St Petersburg days are astonished at the power he now wields.’ Though he knew about these gatherings, Sobchak himself never attended and his three lieutenants – who were one day to run the whole country – were able to discuss the running of his city with complete freedom.
The flood of Westerners pouring into St Petersburg included American capitalists, Christian idealists and ruthless carpetbaggers determined to cash in on the open economy of the New Russia. The National Democratic Institute, a non-profit-making organisation partly funded by the United States Government, sent former presidential candidate Walter Mondale to lecture on such topics as how to draw up a budget. One of the institute’s members, Michael McFaul, told the Wall Street Journal that Putin decided the American efforts were ‘all bullshit’. He wanted US dollars, not Wall Street jargon – and assigned Igor Sechin to organise the seminars.
One night over dinner McFaul was startled when Sechin addressed him in Portuguese, a language he had learned in order to do research in Angola in the 1980s. Sechin explained he had also been in Africa at that time. ‘I worked for the KGB, but now we’re all democrats,’ he said. Indeed, Sechin had acted as an interpreter with Soviet trade and diplomatic missions to Angola and Mozambique but, according to a number of allegations, he was actually a GRU military intelligence agent involved in arms sales.
At Smolny, Igor Sechin was certainly aware of Anatoly Sobchak’s weakness as a free-spending party animal, and of his connection to the Kovalchuk brothers, Mikhail and Yuriy, who arranged ‘entertainment’ for the mayor. The brothers remain in touch with Putin to this day – indeed, Yuriy is his neighbour at the Karelian Isthmus near St Petersburg, where both own dachas on the eastern shore of the Komsomolskoye Lake, and the pair are partners in a local property-owners’ condominium called Ozero.
With money in short supply in St Petersburg in those early days, as in many parts of the country, workers suffered severe delays in receiving their wages. Some were paid in manure or hacksaws – even coffins – instead of cash. Putin was given the responsibility of seeing what could be bartered rather than bought. ‘There was a terrible shortage of flour, so there was little bread in the shops and he had to work on that,’ Stepanov says. ‘In those days, numbers were more important than words.’ Putin was a master of the numbers game (a point confirmed by Deputy Press Chief Dmitri Peskov, who explained during a private meeting in the Kremlin that Putin could tell you the exact quantity of grain produced and exported for any of the past several years). But, ultimately, his efforts involved him in scandal.
Food shortages reached such a crisis point that St Petersburg was forced to break into its strategic reserves of canned rations. A group of Russian businessmen approached Putin with a deal that would cause him endless grief: the group promised that if they were allowed to sell goods – mainly raw materials – abroad, they would import food and distribute it in the city. Putin agreed. ‘We had no other options,’ he says. He obtained permission from the relevant government department and signed the contracts. The scheme began well, but it was soon noticeable that some of the firms were failing to honour the main condition of the contract regarding the delivery of foreign food. Putin observes: ‘They reneged on their commitments to the city’.
A number of council deputies from that time, including the fiery Marina Salye, one of the leaders of the pro-reform group Radical Democrats, seized on this failure and demanded that Sobchak dismiss his assistant. The main allegation against him was that he had issued licences to crony companies to export non-ferrous metals valued at $93 million, in exchange for food aid from abroad that never arrived; and that he had also understated the value of these exports. Sobchak resisted the demands and was further subjected to calls for his own resignation.
Dmitry Medvedev and Putin’s former academic adviser Valery Musin, who were both legal advisers to the committee, helped Putin fight off the accusations. Today, he denies that ‘a single gram of any metal’ was exported. He claims that some of his opponents wanted one of their own – and not ‘a meddlesome KGB agent’ – in the post in order to make money for themselves.
Indeed, graft, fraud and corruption – coupled with mafia-style contract killings – flourished to such an extent that St. Petersburg became the crime capital of Russia. Front offices were set up to hide dodgy business deals. Pyramid-selling (or Ponzi) schemes fleeced people of their life savings. The Russian mafia gained notoriety throughout the Western world, where gangsters like the Tambov mob from St Petersburg invested their ill-gotten loot.
Putin now believes that the city council should have worked more closely with law enforcement agencies to stamp out these practices. The difficulty was that no one knew who could be trusted and who was on the take. Critics labelled Sobchak’s regime a kleptocracy, with him and Putin suspected in some quarters of shady dealings, although nothing has ever been proven.
The spotlight fell on the issuing of export licences for Russian timber, previously a lucrative source of bribe money. It was claimed that Putin found a legitimate – some might say ingenious – way to accept such financial perks: he set up a consultancy which offered ‘advice and direction’ to those with whom he was dealing on behalf of the city. Now that he was no longer receiving his KGB retainer, any resulting fees – should they have been offered – might have provided him and Lyudmila with a welcome boost to a modest council salary.
An Englishman, who met Putin when he went to the council office to obtain a licence for a cargo of timber he was exporting to the United Kingdom, discovered how the system worked. Not only did he get his licence from the mayoral assistant, he says, but the ‘consultancy’ helped him find a car ferry to transport his cargo across the North Sea to Hull. ‘He saw nothing wrong with such an arrangement,’ says the Englishman. ‘After all, he was declaring his “bonuses” and paying tax on them, unlike predecessors who had accepted brown envelopes containing bundles of cash for doing what the city was already paying them a wage to do.’
Putin denies that his committee granted export licences to anyone but leaves scope for speculation about how such licences were obtained. ‘We did not have the right to grant licences,’ he says. ‘That’s just it: a division of the Ministry for Foreign Economic Relations issued the licenses. They were a federal structure and had nothing to do with the municipal administration.’
The flamboyant Georgian billionaire Badri Patarkatsishvili claimed he met Putin in St Petersburg while seeking protection for his operations. He says that Putin provided a ‘roof ’ for his businesses, although he never explained what that entailed. His future partner Boris Berezovsky was uncharacteristically flattering about the man whose bitter enemy he would become. He told Vanity Fair in October 2008 that Putin helped him set up a car dealership in St. Petersburg in the early 1990s and impressed him by neither asking for nor accepting (so presumably one was offered) a bribe.
Even so, there can be no doubt that the Putins were prospering at this time. They lived in a handsome state-owned dacha in the Zelenogorsk district, 50 kilometres north-west of central St Petersburg, and bought a small but comfortable apartment on Vasilievsky Island with pleasant views.
IN 1991 PUTIN was reunited with his German friend Matthias Warnig when Dresdner Bank opened an office in St. Petersburg. Warnig was encouraged by his head office to help Putin drum up foreign investment. The bank underwrote some of his trips to Germany, but neither he nor Warnig has ever been accused of impropriety. Two years later, Putin’s committee assisted BNP/Dresdner (a joint venture between Banque Nationale de Paris and Dresdner) to open a branch in the massive former German embassy in St Isaac’s Square. Deutsche Bank and Credit Lyonnais soon followed suit. Denmark, South Africa, Norway and Greece all opened new consulates to stimulate trade with their nations and the United Kingdom expanded its consulate into an impressive building adjacent to the Smolny compound.
Putin’s committee also created investment zones offering tax breaks and other incentives to foreign companies. Coca-Cola was invited to build a bottling plant at Pulkovo Heights on condition it installed highcapacity power lines and communications cables. Gillette, Wrigley, Otis Elevator, Ford, Kraft-Jacobs, Cadbury-Schweppes and Caterpillar all set up factories in the same zone or in the surrounding districts. As far as Petersburgers were concerned, Putin’s most valuable contribution was not locally-produced Coke or chewing gum, but the completion of a fibre-optic cable to Copenhagen, a project that had started in the Soviet era but was never completed, and which now provides the city with a world-class international telephone service.
Sobchak made frequent trips to Germany, with Putin acting as interpreter. Chancellor Helmut Kohl impressed Putin with his knowledge of Russian history and contemporary life. ‘He said that the Germans were not only interested in the Russian market but in becoming worthy partners with Russia,’ he says. At different times, he also met the British prime ministers Margaret Thatcher and John Major. When the mayor decided to introduce legalised gambling to St Petersburg, Putin was sent to Hamburg, Germany’s leading gambling city, to check out the links between prostitution and the city’s casinos. He came away with the conviction that the government should establish strict control over the gaming industry.
Despite his boss’s difficulties with his fellow councillors, Putin’s reputation for getting things done served him well with the city legislature. The deputies created a municipal entity, Neva Chance, controlling 51 per cent of the stock in the city’s new casinos, from which it was hoped to receive big dividends. Even though the FSB (the main agency to replace the KGB), the tax police and the tax inspectorate were assigned to supervise gambling operations, the casino owners diverted the money from the tables and claimed to be operating at a loss. There were no profits, hence no dividends. Putin admits to a certain amount of naivety. ‘They were laughing at us and showing us their losses,’ he says. ‘Ours was a classic mistake made by people encountering the free market for the first time.’
THEY MET on a blind date in Moscow when he was a novice secret agent, but airline stewardess Lyudmila Shkrebneva could never have imagined that Vladimir Putin would one day make her Russia’s first lady.
It was not a case of all work and no play. On one of his trips to Hamburg, Putin took Lyudmila and another couple who were travelling abroad for the first time to an erotic show. He would rather have paid a visit to the Star Club, where his beloved Beatles had cut their musical teeth but ‘they talked me into it’. The group quickly discovered that the show was not so much erotic as crude, so much so that Lyudmila’s female friend stood up from their table during the performance and, with her eyes fixed on the stage, dropped down in a dead faint. Putin took the executive decision to lead the shocked lady – and their friends – towards the door as soon as she came around.
Marina Salye returned to the attack with allegations that Putin gathered information on the sexual proclivities of Sobchak’s rivals for possible use against them. However, Vatanyar Yagya, who worked closely with him on the Foreign Relations Committee, denied that he ever acted in KGB style. ‘He always supported democratic principles, respected people and talked calmly,’ he says. ‘He always thought about the interests of Russia and St Petersburg.’
With Igor Sechin at his side, he developed the brusque, no-nonsense style that would become the leitmotif of his presidency. ‘He was the first to arrive at receptions and the first to leave,’ says one foreign diplomat quoted by biographer Andrew Jack. ‘He shook hands and he never said anything.’
The Wall Street Journal recounts the experience of a foreign property developer who called on Putin to appeal for exemptions from Soviet-era tax provisions. As he explained that the taxes were preventing investment in some downtown real estate, Putin interrupted. ‘Look,’ he said, ‘to stay in power, we need jobs. In order to get jobs, we need investment. I understand all this, so I’ll help you. Now get out of my office.’
Graham Humes, a Philadelphia investment banker, received a much more sympathetic hearing when he arrived in the city in 1993 to turn gifts of American butter into financial assistance for small Russian businesses through a non-profit organisation called CARESBAC. The idea was that shipments of surplus frozen butter would be sold on the St Petersburg commodity exchange and the proceeds – estimated at $9 million – invested in the city. At a meeting with ‘several very grumpy, self-righteous, old men in Moscow’, Humes was informed that his operation was in breach of a new Russian law and that the proceeds from the sale of butter – already amounting to more than $2 million – would be forfeited.
Back in St Petersburg, the United States consulate commiserated with Humes but said there was nothing it could do, so he took the problem to Putin in his sparsely furnished room at Smolny. ‘Putin listened intently,’ he says. ‘He then said he did not think there was such a law but as a lawyer he would check for us and call us back.’ Putin was surprised to discover that the grumpy old men in Moscow had been right and the butter scheme would need an exemption if it were to go ahead. He prodded Sobchak into raising the matter with Prime Minister Chernomyrdin during a visit to Moscow. Humes was in Putin’s office when Sobchak called from the capital. He was shouting so loudly that Putin held the phone at arm’s length and said: ‘I think we can both hang up our phones – I can hear you fine without’.
The matter was resolved when Chernomyrdin paid a visit to Smolny a few months later and Putin presented him with the draft of a decree exempting the butter project from confiscation. Chernomyrdin signed the paper and within weeks Sobchak cut a ribbon to open a new dental clinic, funded by $1.5 million from Humes’ organisation. ‘I found Putin to be professional and skilled in political tactics, enabling him to dance around the old apparatchiks in order to achieve a St Petersburg opening for foreign capital to benefit fledgling Russian businesses,’ he says. Asked about kickbacks, Humes replied: ‘Not one Russian connected with his office ever suggested any variant of our negotiations which might have diverted money from the dental clinic. Russian friends of ours said then, and affirm today, that Putin has earned widespread respect for working for the best interests of the city and for maintaining a low profile. Unlike Sobchak, he has never appeared to benefit personally from the job.’
Meanwhile, relations between Sobchak and the city councillors had reached a nadir in 1993, when he began moves to have the council disbanded; later that year it was dissolved by decree from Moscow. In the parliamentary elections of December 1993 he successfully led one of several competing reform parties. The following March Putin became First Deputy Mayor of St Petersburg (there were two other deputies, Vladimir Yakovlev and Alexei Kudrin) while retaining his foreign investment role. His new duties included overseeing the city’s lawenforcement agencies and the media.
ALWAYS HAPPY when Silvio Berlusconi is around: Both men donned fur hats and coats when Putin invited his friend to dine outdoors at his country residence on a bitterly cold night.
Sobchak was frequently out of town. He employed Richard Torrance, a New York PR man, to arrange speaking trips to the United States. Putin accompanied him on two such trips but often stayed behind to assume the responsibilities of acting mayor. Sobchak was a lover of culture and the arts and is credited with restoring St. Petersburg to its imperial glory. Much of the restoration work was supervised by Putin and his fellow mayoral deputy, Vladimir Yakovlev, during this time. One of the relics to benefit was the old Astoria Hotel in St Isaac’s Square, where Putin’s grandfather Spiridon had demonstrated his culinary skills back in Tsarist times. Putin also developed a love of the theatre, especially opera and orchestral concerts, and befriended Russia’s most famous conductor, Valery Gergiev. Nights at the opera, Lyudmila has said publicly, put the romance back into their lives.
Many of the improvements to the fabric of St Petersburg life were cosmetic. Crime rates remained embarrassingly high and headline writers were now calling it ‘Chicago on the Neva’. While Moscow prospered during the early years of Russia’s open economy, with new high-rise building reshaping its skyline and luxury shops and restaurants opening in its downtown streets, St Petersburg remained firmly in second place. Every major hotel group spurned the city’s overtures to build there and Crédit Lyonnais, Honeywell and other companies which had initially set up shop in St Petersburg decamped to the newly fashionable capital.
Throughout this period Anatoly Sobchak was subjected to smear campaigns about his private life. There were rumours that he had dipped into city funds to buy an apartment for himself and procured other stateowned properties for relatives, including an artist’s studio for his wife, Lyudmila Narusova, a member of the federal parliament. For the last year and a half of Sobchak’s term, Putin stood by him while he was under investigation, although he points out that in some cases the mayor was a witness rather than a suspect.
‘[Putin is] basically a conformist, loyal to the team of which he is a member,’ says Alexander Sungurov, a democratic deputy in the St Petersburg city council at the time. ‘When he was on Sobchak’s team, he was loyal to Sobchak.’
Meanwhile, powerful forces were gathering to mount an assault on the bastions of Russian industry: an assault that one day would present Putin with his greatest challenge.