Oleg Deripaska had no time for empty formalities. By his 40th birthday he had risen to be the wealthiest man in Russia, with a $44 billion global empire and 290,000 employees. Still, not even he could skip the big conference in the city of Krasnodar where Vladimir Putin's handpicked successor as president, Dmitry Medvedev, was to lay out his vision for the future. Deripaska dutifully showed up and greeted Medvedev—and then left early by private plane, too busy to stay for his own scheduled speech. Success had dazzled him, says Krasnodar's senator, Alexander Pochinok, an old Deripaska friend who was there. "He believed he could grab God by the tip of his beard."
That was in January 2008. A few weeks ago Deripaska met again with Medvedev—this time as a humbled man. His empire was lost unless the Russian president got its creditors to hold off foreclosing $7.4 billion in urgent overdue loans—less than half of Deripaska's total indebtedness. Medvedev reluctantly agreed. A few days later, the former multibillionaire arrived unshaven and in jeans for a meeting with Russia's finance minister, Alexei Kudrin. A senior official who was there, asking not to be named because the session was closed to the press, says Deripaska looked exhausted and spoke little. But Kudrin offered no relief to him or any of the oligarchs in the room. "There will be bankruptcies," Kudrin told the oligarchs.
The story of Deripaska's rise and fall is not merely the tale of an overleveraged young oligarch. It's a window on money and power in post-Soviet Russia, showing the flaws that hid behind the nation's economic revival under Putin—and the dilemma the country now faces in the aftermath of the crash. Medvedev says he wants to end the old patronage system, but so did Putin. The question is whether this president is crafty enough and strong enough to make the fixes that are necessary.
Deripaska's associates speak of his brusque manner and powerful mind. "He has very little tolerance for bulls––t or social niceties," says one former top employee, unnamed so he can speak candidly. "But he's smart. He asks the right questions. He is very determined to get his way." That blend of stubbornness and brains brought Deripaska from his home village in southern Russia to Moscow's top universities two decades ago. With degrees in physics and economics, he began building his empire, bit by bit. Making the rounds of newly privatized factories, he bought up shares from individual workers until he amassed a controlling stake. By 1994 he had 20 percent ownership and a seat on the board of the Sayanogorsk Aluminum Smelter.
From there he launched a Siberia-wide investment group and became embroiled in an often vicious struggle against Russia's other metals moguls for control of the aluminum industry. Igor Bunin, president of the Center of Political Technologies, a Moscow think tank, credits Deripaska with outwitting "some of the most dangerous men in Russia." Dozens were left dead in what became known as the Aluminum Wars, and an FBI investigation into Deripaska's possible mob ties from that period has been cited as the reason for the 2005 revocation of Deripaska's U.S. entry visa. But no charges were brought against him, and he has denied any wrongdoing or any connection to organized crime.
Deripaska gravitated toward Boris Berezovsky and other industrialists close to then president Boris Yeltsin. Sergei Dorenko, who was then Russia's top news anchor and had close ties to the Yeltsin circle, remembers Deripaska's pushy charm. "He was very good at making friends," says Dorenko, recalling how the young metals magnate buttonholed him in a TV station corridor and introduced himself. "He made friends with Berezovsky the same way—and through Berezovsky with [then Kremlin chief of staff] Valentin Yumashev, and later with Putin and, later still, with the Western establishment." By the end of the Yeltsin years, Deripaska had become Russia's aluminum king, forming RusAl with another rising oligarch, Roman Abramovich. Soon he married Polina Yumasheva, daughter of the former Kremlin chief-of-staff and step-granddaughter of Yeltsin.
Under Yeltsin, the oligarchs' power rivaled the Kremlin's. It was a small group of Russia's richest men who singled out Putin and set him on the path to succeed the ailing president in 2000. As it turned out, they chose wrong: instead of protecting their interests, Putin turned on them. He closed their TV stations and forced them to hand over their assets to younger men more personally loyal to him. Within a year, two of the most powerful oligarchs—Boris Berezovsky and Vladimir Gusinsky—were driven into exile. The wealthiest of them all, Mikhail Khodorkovsky, ended up in a Siberian prison camp on charges of tax evasion.
The survivors of the purge shared one thing: total loyalty to the Kremlin. Although Putin and Deripaska never became close friends, the young man did everything to please the president. At a word from Putin, Deripaska took over and revived not only decrepit factories but entire industries. "Deripaska changed our Russian straw shoes for shiny boots," says Deripaska spokesman Sergey Rybak.
But as fast as Deripaska created value, he leveraged it. He met Nathaniel Rothschild, the son of Jacob, Lord Rothschild, in 2003, and they teamed up. Deripaska needed capital, and the Rothschild name "was crucial in making Deripaska respectable," says one London banker asking not to be named discussing a colleague. Backed by Rothschild and other Western moneymen, Deripaska built an edifice of leverage that would make "even Lehman Brothers a bit queasy," as one of Deripaska's foreign creditors puts it. "Everything was bought on borrowed money, and then the equity was pledged again." And it all rested on a bubble: in just two months last fall, aluminum prices plunged from $3,500 a ton to $1,350. Demand also went off a cliff, with more than 10 million tons—a full quarter of RusAl's 2008 production—lying unsold.
Deripaska was dangerously exposed. In March 2008, at the very top of the metals market, he had bought 25 percent of the metals giant Norilsk Nickel for $4.5 billion from his fellow plutocrat Mikhail Pro-khorov. By late October, foreign creditors were threatening to seize Deripaska's piece of the company. National pride forced Russia's finance minister to order a $4.5 billion credit line so Deripaska could refinance his piece of Norilsk.
Putin now has two options, says Dorenko: "He can nationalize everything Deripaska used to own—or he can throw Deripaska onto the people's pitchforks, like they did with barons here in the Middle Ages." That's bad news for Deripaska: cash is too tight these days for the government to bail him out. The Kremlin's sole priority is to avoid mass layoffs, possibly by letting foreign investors step in. Medvedev seems sincere in his desire to end the culture of oligarchy, says Kirill Kabanov, head of the National Anti-Corruption Committee, a Moscow-based NGO. But like it or not, the president's only choice may be to have another oligarch take over Deripaska's empire, despite the old system's flaws.