INTRO: I’m sure you’ve all heard of Vladimir Putin. He’s
been the Tsar of Russia for the past 22 years, and it doesn’t look like he’s going anywhere
anytime soon. After all, his approval ratings are over 80%. Now of course, I know a lot of you guys
don’t believe these numbers, but these numbers are still very telling. While these numbers may
not be indicative of his public support, they are indicative of his inner circle support.
One of the main reasons that Putin is able to get away with starting a war and jeopardizing
the Russian economy is because he has dozens of rich oligarchs that back him up. In fact, these
oligarchs were the ones that made Putin president in the first place. And the most notable of these
oligarchs is ironically a man named Vladimir Potanin. Vladimir Potanin is the richest man in
all of Russia coming in at $31 billion. Aside from his extraordinary fortune, Potanin was the former
first deputy prime minister of Russia. And this is the position that he got for making Yeltsin
president. So, here’s the story of Vladimir Potanin and how he made Putin the Tsar of Russia.
SOVIET UNION: Taking a look back,
Potanin was born on January 3, 1961 in Moscow. This was during the height of the Cold War
and the infamous Cuban Missile Crisis was just around the corner. So, Potanin’s entire childhood
was filled with communist propaganda and anti-US sentiment. This was especially the case due to
his father Oleg. Oleg was a highly respected Soviet diplomat who traveled internationally to
meet with countries like New Zeland and Australia. Meanwhile, Potanin’s mother was a doctor who often
accompanied Oleg on his business trips. This meant that Potanin was often left with his grandparents.
Despite this, Potanin has always credited much his wit and intelligence to his parents. Anyway,
Potanin would end up following in his father’s footsteps and enroll in the Moscow State Institute
of International Relations. This university was especially designed to prepare students to serve
in the KGB and Kremlin sectors, and that’s exactly what Potanin would do after graduating in 1983.
His first job was at an arm of the Ministry of Foreign Trade called FTO Soyuzpromexport.
He would spend his entire 20s here as he learned about the inner workings of the USSR and
built up a professional network. Honestly, I’m not sure if he would have left the Ministry at
all if the USSR was still strong. You see, the USSR would end up collapsing the same year that
Potanin quit in 1991. So, it looks like Potanin left sensing what was coming. Fortunately though,
he was able to make a lot of powerful connections during his time at the Ministry,
and he would these connections to setup a private association called Interros. On the surface,
Interros was simply a trade association that dealt with common metals such as aluminum, copper,
and lead. Russia has a decent supply of all these metals, so it seemed like Potanin was looking to
build up a classic raw material business, but this was not the case. Interros was simply a
front to run his true money maker which was the infamous financial scheme called loan for shares.
LOANS FOR SHARES:
Most of you are probably not familiar with loans for shares because the scheme is unique to Russia
and Potanin himself. In fact, Potanin was the mastermind behind the scheme. It all started with
opening up two financial institutions called the International Company for Finance and Onexim Bank.
Potanin founded these two institutions with a business partner named Mikhail Prokhorov
who is also a deca billionaire today. Anyway, Potanin would be made president of the bank
and the two would go onto recruit depositors. This was actually super easy because they faced
virtually no competition. You see, private banking was banned in the USSR and the only
bank in the entire country was the central bank called Gosbank. Potanin’s Onexim bank was one of
the first banks to pop up after the collapse of the USSR. And given all of Potanin’s connections
from the ministry, Onexim was able to become the largest private bank in Russia in no time. And now
that Potanin had money on his side, he started to put this money to work. At the time, Russia didn’t
have a stock market or any prominent private business. Basically everything was state owned,
so if Potanin wanted to gain ownership in any of these businesses, he had to work with
the government. Fortunately for Potanin, this was actually super easy because Potanin had something
that the government desperately needed: cash. At the time, the president of Russia was a man named
Boris Yeltsin who was up for reelection very soon. Given that the the country was going through a
massive liquidity crisis, his reelection prospects were iffy to say the least. So, President Yeltsin
would start looking for ways to raise cash to save Russia as well as his presidency.
And this is where Potanin would step in with his loans for shares program. The idea was actually
super simple, he was basically just offering the government margin loans. Potanin and his business
partners would bail out the government and fund Yeltsin’s reelection campaign if Yeltsin put
up 12 state owned energy and mining companies as collateral. Yeltsin would of course take the deal,
and Potanin would help Yeltsin win reelection. However, this didn’t really help the Russian
government change directions. The government was still burning loads of money and Potanin’s money
just allowed for a few more years of survival. It wasn’t long until Russia was facing a liquidity
crisis once again and this would eventually climax in the 1998 Russian Finanical Crisis.
During this crisis, Russia would default on their debt which meant that Potanin and his friends
could keep the collateral. For most financial institutions, this would be far from ideal.
They’d rather just get their money back than get stock or real estate or whatever the collateral
may be. But, for Potanin and his friends, this is exactly what they wanted. The loans that
they gave Russia were extremely small relative to the collateral that they had, so they had hit the
jackpot. They had basically just margin called Russia to become multi billionaires themselves.
PUTIN: After such a public failure,
I don’t think that you’d be surprised to hear that Yeltsin lost all public support. There was
no way for him to win yet another election, so he would do the honorable thing and step aside.
Right before his term ended in 2000, Yeltsin would go ahead and resign and tap on Vladimir Putin to
become acting president until the next election. In the meantime, Potanin was having the time of
his life. After Yeltsin’s initial victory, Potanin was appointed as the First Deputy Prime Minister.
However, Potanin didn’t stick around for long. He would leave in March of 1997 as he could
sense what was coming and he didn’t want to be on that side of the crisis. Instead he spent his
time building up companies that were valuable and offloading ones that weren’t. For example, he was
keen on protecting his 54% stake in Nornickel which was a nickel mining and smelting company.
Meanwhile, he offloaded positions in other companies like Svayzinvest. Svyazinvest
was a telecommunications giant in Russia, but it seems that Potanin knew that it was a garbage
company on the inside, so he started looking for potential targets that he could sell his
position to. He convinced Soros to invest $980 million into the company in return for a 25%
stake. Soros would eventually realize that this was the “worst investment” of his life. So far,
Potanin had left Yeltsin and Soros out to die, but he wasn’t so careless with all his relationships.
One relationship that he valued highly was his friendship with Putin. It was clear to Potanin
that Putin was gonna be in power for quite some time, so it was in his best interest to stay on
Putin’s good side and that’s exactly what he’s done. According to the US Treasury, Putin’s
inner circle is made up of 210 inidivuals out of which 96 are oligarchs. And given that Potanin
is the richest of them all, there’s no doubt that he has quite a bit of influence on Putin.
And now that Potanin had Putin’s ear, he would return to his treacherous behavior.
BACKSTABS:
One of the first people that Potanin would turn on is Mikhail Prokhorov. If you don’t remember, this
was the guy that helped Potanin setup the Onexim bank and eventually the loan for shares program.
In 2007, Potanin announced that he was splitting ways with Prokhorov and he would launch a bid to
buyout his stake in Nornickel. He offered just $1 billion for Prokhorov’s stake. According to
Prokhorov, his 25% stake was worth $15 billion. Prokhorov would turn to Putin
for support and Putin would actually side with Prokhorov probably because Putin values loyalty
over everything else and Potanin was clearly not loyal. So, Putin would actually call Potanin and
chew him out saying quote “ It’s dishonest to cheat on partners.” Thanks to Putin’s support,
Prokhorov would be able to sell his stake to Oleg Deripaska instead who gave him a much more
reasonable $8 billion. This gave Prokhorov an out from this fiasco, but Potanin was obviously
not happy. He shifted his dispute over to Deripaska and this lasted all the way till 2012.
At this point, a man named Roman Abramovich would buy a 6.5% stake in Nornickel and he
would basically become a peacemaker between the two. This stopped the fighting between Potanin
and Daripaska, but now Potanin has brought the fight over the Abramovich. In February of 2018,
he offered to buy 4% from Abramovich. Clearly, this guy doesn’t stop until he gets what he wants.
This is not that big of a problem when he’s simply fighting other businessmen who are probably
just as ruthless. But, it becomes quite an issue when his actions affect the environment as there’s
no one to protect the environment. Historically, Nornickel has been one of the largest polluters
of the Russian Arctic. As of 2013, Nornickel was discharging 500 tons of copper and nickel oxides
as well as 2 million tons of sulfor dioxide every year. This pollution has reduced the
life expectancy of people living in the area by 10 years relative to the rest of Russia. Putin
has been aksing Potanin to reduce his pollution for quite some time, but Potanin has yet to take
any meaningful action. If anything, things have only gotten. In fact, in May of 2020, Nornickel
had an oil spill that flooded Russian rivers with 21,000 tonnes of diesel. This was Russia’s
second largest oil spill of all time and it has resulted in a $2 billion fine for Nornickel.
Hopefully, a financial punishment is enough to change Potanin’s ways, but only time will tell.
POTANIN TODAY:
Despite all of the bad deeds of Potanin has been involved in, things have been going quite well for
him. In fact, Potanin’s firm, Nornickel is one of the biggest Russian firms that haven’t been
sanctioned by the western world at large. Only a few countries such as the UK and Canada have
sanctioned off his company. The rest of the world hasn’t really taken any action against
Potanin though due to how important his company is to the global metal industry. This is why Potanin
is one of the only Russian billionaires who hasn’t shed much wealth this year.
The rest of the Russian billionaires are down $5 to $10 billion since the beginning of the year.
So, clearly, things have been playing out pretty well for Potanin. Looking forward, it doesn’t seem
like his wealth or influence will be disappearing anytime soon especially given that he’s not even
hurting due to the sanctions. So, all we can do is hope that Potanin scales back his pollution and
uses his influence for good instead of supporting unnecessary wars. But that’s just what I think.
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