Twilight Of The Oligarchs

Sergei Dorenko was hardly surprised when he was fired two weeks ago. The blow had been coming ever since last September, when the executives of Russia's No. 1 television network, ORT, abruptly canceled the news show he anchored and began dismissing the members of his news team, one by one. No one had any doubt why. The Kremlin was furious at his outspoken broadcasts--especially his coverage of the disastrous loss of the submarine Kursk. Now old friends and colleagues are asking what they can do for Dorenko. He advises them to keep their distance. "I don't recommend to people that they help me," he told NEWSWEEK. "I'm a lightning rod."

He'll get little solace from his former boss at ORT. One of the most powerful "oligarchs," the tycoons who dominated Russian politics while Boris Yeltsin was president, Boris Berezovsky was instrumental to the rise of Yeltsin's successor, a career KGB officer named Vladimir Putin. That was then. These days the oligarchs are losing their chokehold on power. Putin is in control, and his government seems determined to neutralize any possible challenge to his absolute authority. Putin has staged a stunning silent coup, stifling his critics and eliminating just about every serious rival. He has humbled the once mighty regional leaders and tamed Parliament. Now his loyalists are proposing a law that would shut down most political parties--and hardly anyone has objected. Many observers warn that Russia's nascent civil liberties are at risk--especially freedom of the press. "Society is sleeping," says Vladimir Ryzhkov, a centrist M.P.

The oligarchs are in retreat. Two of them have actually fled the country: Berezovsky and his onetime rival Vladimir Gusinsky, owner of the Media-Most conglomerate (which publishes the Russian-language newsmagazine Itogi in cooperation with NEWSWEEK). Unlike their fellow oligarchs, both men had major holdings in Russia's broadcast industry--and both became targets of legal action for allegedly questionable business dealings, even as they vehemently denied any wrongdoing. Their empires have been crumbling in their absence. Last week the state-controlled gas monopoly, Gazprom, claimed to have won a decisive legal judgment against Media-Most. According to Alfred Kokh, the head of Gazprom-Media, the prize was a controlling stake in Russia's last privately owned national television station, NTV. Gusinsky insists the fight is not over.

Don't bet on it. Gusinsky is living under house arrest at a villa in Spain while the Kremlin seeks his extradition on fraud charges. Many observers think the case is politically motivated, but that may not help him in court. His troubles began in 1996, when NTV's sympathetic campaign coverage helped Yeltsin hang onto the presidency against a strong communist challenge. The government showered Media-Most with rewards: valuable transmission frequencies, cheap government credits--even an offer from Gazprom to put up collateral for $473 million worth of loans from a Western bank.

Accepting that financing was one of the worst mistakes of Gusinsky's career. He may have compounded the error when he imagined NTV could say what it liked about Putin and even make fun of the First Lady. Gusinsky was briefly jailed last summer, accused of embezzlement in the privatization of a regional TV company. The case evaporated, and Gusinsky flew to Spain. Since then prosecutors have filed a new case, accusing him of defrauding Gazprom when it put up the collateral for the $473 million loan. Kremlin officials publicly insist the actions against Gusinsky have nothing to do with politics and everything to do with business. Privately, Kremlin sources acknowledge that the "Gusinsky problem" is all about politics.

Berezovsky followed him into exile in November. The former kingmaker antagonized Putin by balking at the president's efforts to limit the power of regional leaders (many of whom were Berezovsky allies). Then Moscow investigators began looking into Berezovsky's alleged misdeeds in connection with the national airline Aeroflot; the case remains open. Suddenly he was longing for the climate at his vacation home in Cap d'Antibes. Now his old business partner Roman Abramovich is reportedly taking over Berezovsky's properties: his shares in ORT, his interests in the oil and aluminum industries. Abramovich doesn't make trouble for Putin, and the president repays him in kind. Berezovsky, once a proponent of the "consolidation" of central power, has taken up the cause of democratic freedoms, contributing to human-rights groups and initiatives to revive Russia's comatose civil society. But few Russians seem to take him seriously.

Most of the old oligarchs, like Abramovich, want to stay on Putin's good side. They have gratefully accepted a new "social contract," as one senior Putin aide describes it: "The state has its obligations, the state has the power. Businessmen should do business." According to the aide, the Putin administration has promised to help the oligarchs protect their empires from threatened legal challenges. Many questions have been raised about the legitimacy of the privatization auctions of the mid-'90s, in which Yeltsin cronies snatched up state-run industries for fire-sale prices. They began formulating policy, appointing ministers and drawing up laws. More often than not, their friend Yeltsin let them do it.

Now Putin wants them to stay out of government. And one more thing: pay up when he passes the hat for his pet causes. Last week Putin met with a business leaders' club and reportedly drummed up some $50 million in pledges for the benefit of soldiers fighting in Chechnya. Reluctant donors may get a visit from the police to jog their consciences. A few months ago the government fired a shot across the bow of nickel-tycoon Vladimir Potanin, billing him $140 million for participating in an allegedly rigged privatization auction. He argued but paid in full. Some Russians say he's still paying. Recently he visited Cuba with Putin and abruptly announced his decision to invest an estimated $300 million in a money-losing nickel factory there.

Ordinary Russians are applauding the spectacle of Putin cutting the oligarchs down to size. Maybe he hasn't taken a "cudgel" to them, as he once promised. Nevertheless, his popularity ratings stand at roughly 70 percent, a level no Russian leader has achieved since the fall of communism made opinion polls possible. Almost all the oligarchs are continuing to prosper, and there's no reason to assume they will be gone when Putin leaves office. "The oligarchs will still be around," predicts newspaper journalist Mikhail Rostovsky. Still, he concedes, the situation won't be quite the same as it used to be: "It's unlikely that any of them will be crude enough to say they still control the country."

It's a sorry sort of oligarch who has no political power. Still, Berezovsky and Gusinsky can only wish they could be so lucky. Last week prosecutors staged their 28th raid on Gusinsky's empire. One of NTV's best-known newscasters, Tatyana Mitkova, was taken in for questioning. A senior Media-Most executive, Andrei Tsimailo, was questioned by prosecutors and then fled the country, pleading medical problems. The Prosecutor General's Office indicted one of the company's financial officers, Anton Titov, on unspecified embezzlement charges. Some people at the company say the turmoil is starting to affect the quality of NTV's programming. Independent market surveys say the network is losing viewers.

The president knows how to fight a ratings war. "Putin considers himself a product of TV," says Dorenko. "He is trying to control the machine that generates him: television." The ousted commentator understands intimately how TV helped to make the president. Many analysts say Dorenko's coverage of the 1999 parliamentary elections, especially his merciless treatment of the Fatherland All Russia party of former prime minister Yevgeni Primakov, played a key role in catapulting Putin to the presidency. At the time, Dorenko's paychecks were signed by none other than Putin's biggest booster, Berezovsky.

Now the wind has shifted, and the plight of independent broadcasting in Russia keeps looking more and more hopeless. Recently Ted Turner, the U.S. media tycoon, tried to rescue Media Most from its financial problems--but the Kremlin torpedoed the idea. A Turner-led consortium was proposing to invest $300 million in the beleaguered company. There was one catch: the Westerners wanted the Kremlin's promise to stay clear of editorial decisions. "I have always had a longstanding interest in Russia. I have communicated my interest in NTV to President Putin, and I look forward to his reply," said Turner. Putin's security chief Sergei Ivanov publicly refused to give any such guarantees. "Turner's a great man," says a senior Kremlin official. "But why is the president obligated to give him anything?" The official adds ominously: "Every country has limits on foreign investment in the media."

But Gusinsky has precious few domestic friends these days. A lot of his old political allies--in particular the Moscow city government--have been conspicuously reluctant to show support for him. Political operatives such as Sergei Zverev, who once lobbied the Kremlin on behalf of Media-Most, have quietly left the government and distanced themselves from the company. Many observers are wondering how long the company can hold out against the government's all-out offensive. One Media-Most employee recently caught the dominant mood during the company's lavish annual holiday-season party at a Moscow hotel. Looking around the ballroom, she remarked: "It feels like the Titanic." That could be a comforting thought for the oligarchs. After all, most of the victims in that disaster were traveling in steerage, not first class.