Thus was the joint operation of Fedulev and the provincial UBOP to illegally seize the Lobva Hydrolytic Factory crowned with success. There were manifest violations of the law and ultra vires actions by civil servants.
As we look back from the heights of 2004, the fourth year of the dictatorship of law proclaimed by Putin, who has been called to account? Nobody. Not so far, at least. Today the Lobva factory ekes out a miserable existence. Fedulev has sucked it dry and moved on, as was to be expected. In 2000, having reconquered Lobva and acquired a pile of cash during the following months (since there was no one to stop him), Fedulev started moving in on the minerals market. The first item on his menu was Kachkanar.
KACHKANAR
The internationally known Kachkanar Ore Enrichment Complex is one of Russia’s national assets. It is one of the few enterprises in the world that mine ferro-vanadium ore. Its output provides an essential component for blast-furnace smelting. In our country, at least, not a single rail for the railways network would have been produced without the factory.
In the mid-1990s, like many other important Russian enterprises, the Kachkanar OEC was subjected to a succession of privatization measures that left it financially crippled. The situation became particularly dire in 1997—98. At this point, Fedulev became chairman of the board of directors and proceeded, as he always did, to emasculate the enterprise. By the end of 1998, Fedulev had brought Kachkanar to the point of bankruptcy, and only the arrest of the Urals Entrepreneur of the Year made a revival possible as other shareholders became able to play an active part. They hired a team of knowledgeable managers under the direction of Dzhalol Khaidarov, and large-scale investors appeared on the scene.
In 1999 the enterprise was transformed. Production rose to capacity, the net asset value increased, the workers began to be paid their wages again. Kachkanar’s situation was similar to that of Lobva’s. The town had grown up around the plant, and ten thousand people, almost the entire working population, were employed there.
The results of the recovery were obvious: the plant’s shares again became sought after on the stock market.
In his entourage almost every Russian provincial governor has the kind of individual that Yeltsin had in Putin: an astute and loyal assistant, proclaimed as his patron’s heir apparent because someone is needed to cover the principal’s back when he retires from the political arena, to ensure his continuing financial well-being and personal security.
For Eduard Rossel, governor of Yekaterinburg, this person was Andrey Kozitsyn, the Copper King of the Urals, who managed the smelting factories of Sverdlovsk Province. As the next election for governor approached, Yekaterinburg saw Copper Kozitsyn expand into the iron industry, under Rossel’s patronage, of course. Rossel was not going to be governor forever, so with reelection time approaching, he took steps to concentrate the juiciest bits of Urals industry in Kozitsyn’s hands.
As you may recall, one of Fedulev’s first visits in Yekaterinburg after his release from prison was to Governor Rossel. What they talked about we do not know exactly, but immediately after the audience, Fedulev transferred, to a trust managed by Kozitsyn, his shares in two enterprises, the Kachkanar OEC and the Nizhny Tagil Metallurgical Complex. To all appearances this was a straightforward deal between Fedulev and the governor. Fedulev bought himself the right to do as he pleased in the province, and Kozitsyn moved in on Kachkanar.
It has to be said that at that moment Fedulev’s ownership was down to only 19 percent of the shares of the Kachkanar complex, and even those were a bit suspect, as we shall see. Because the shares transferred to Kozitsyn did not confer control, it wouldn’t be easy to parachute in a director of their choosing. In any case, the managers, headed by Khaidarov, opposed the new Fedulev-Kozitsyn invasion and had the owners of 70 percent of the shares behind them.
What was to be done? Usurpers use force to get their way. At the end of January 2000, the Kachkanar complex was seized by armed men. There was shooting, there were forged documents, and the law-enforcement agencies were actively involved in the mayhem. In fact, the melee was a repetition of the scenario used at the Lobva Hydrolytic Factory. There was also active noninvolvement on the part of Governor Rossel, just as in Lobva. At dawn on January 29, the complex was vouchsafed a new director, Andrey Kozitsyn, and Pavel Fedulev strolled proprietorially through the empty offices of the management. Plus ça change…
It was clear, however, that the power of these cuckoo birds would last only until the first shareholders’ meeting, which could simply throw them out. The insurgents concluded that they should make two moves: not allow a shareholders’ meeting and bankrupt the enterprise as soon as possible, to deprive the shareholders of their powers. Under Russian legislation, shareholders of an insolvent enterprise become nonvoting owners.
Fedulev and Kozitsyn prevented the meeting by a method successfully practiced in Chechnya. They simply blocked off all entry to and exit from the town. The shareholders on their way to the complex, accompanied by the dispossessed managers, were stopped at police checkpoints. How was that possible? Easy! Sukhomlin, the mayor of Kachkanar, issued Emergency Directive No. 14, banning the entry into Kachkanar of “citizens from other cities.” All the shareholders and managers of the complex came from cities other than Kachkanar.
It was ridiculous, of course, a farce, but a farce taking place in real life. The shareholders’ meeting was not held, and the partners in crime set about implementing the second half of their plan: the artificial bankrupting of the Kachkanar OEC.
How was this to be done, since the complex was functioning successfully?
Kozitsyn took a credit of $15 million from the Moscow Business World Bank, secured on the assets of the complex. He had no trouble getting it, because who would not like to get their hands on the Kachkanar plant? Equipped with this credit, he issued promissory notes from the enterprise. The money was invested not in the complex but in another of his businesses, Svyatogor—also located in Sverdlovsk Province—supposedly to create a joint enterprise. The next step was for Kozitsyn to seemingly transfer the Kachkanar promissory notes to Svyatogor.
Why “supposedly” and why “seemingly”? Well, none of these transactions actually took place. All the transfers were virtual, and the promissory notes from the complex ended up in the hands of a tiny firm. This firm, a front, was registered at the address of a modest Yekaterinburg apartment apparently belonging to a woman who subsequently, despite everyone’s best efforts, could not be traced; this virtual proprietor was instantly transformed into the main creditor of the most influential ferro-vanadium producer in the world. How? The ephemeral firm bought the complex’s promissory notes for 40 percent of their nominal value and promptly presented them to the enterprise for payment at 100 percent. It then declared the enterprise bankrupt because it could not buy back its promissory notes at 100 percent of the nominal value. In this way, the phantom woman was found to have 90 percent of the votes at the creditors’ meeting. This fraud was played out brazenly under the nose of the provincial government: the creation of a straw creditor and an artificial debt, and the theft of millions of dollars from the real owners of the enterprise, who found themselves without any rights to the assets or refund of their investments.
While this was going on, an around-the-clock guard was mounted in Kachkanar by the provincial UBOP to avoid any annoying intrusions like a new Galina Ivanova, chairwoman of the trade-union committee. The guard was the same group as in Lobva when the factory there was seized.