Mikhail Fridman’s headquarters in Moscow has the look and feel of an old-time Hollywood mogul’s lair: The ceiling vaults 20 feet, colossal abstract paintings hang on the walls, designer chairs induce soothing comfort, and a broad staircase leads to a very private alcove. In this opulent setting Fridman is summarizing a few of the basic tenets behind his improbable rise from window cleaner to billionaire oligarch in barely a dozen years.
Rule No. 1: Only make investments that offer potentially huge returns. “When we began, we never thought of investing in . . .” -- here Fridman pauses, straining to locate objects of insignificance amid all this splendor -- ". . . in cups or ashtrays, for example. We looked for really big businesses, like banking and oil.”
Rule No. 2: Foreign investors are welcome, but only after Russian insiders have won the most lucrative battles for assets (see box, page 126). A case in point is the recent merger of Fridman’s oil company with BP, which didn’t take place until the British petroleum giant had been forced to forgo several years of profits in an earlier investment in the same property.
Rule No. 3: Don’t expect reforms to change Russian capitalism’s robber baron mentality anytime soon. “It’s not that I object to reforms, but businessmen can’t wait around for the government to act,” he says.
Rule No. 4: “Eventually, everything we own is for sale -- probably to foreign investors,” says Fridman.
And rule No. 5: No matter how much wealth you amass, stick to business and leave politics to the professionals. Mikhail Khodorkovsky, Russia’s richest oligarch, appears to have gotten himself into deep trouble by breaching that barrier (see page 9). After hinting at presidential ambitions, he and his Yukos Oil Co. recently came under criminal investigation. On the other hand, the more prudent Fridman -- a tall, burly 39-year-old with an impish grin who is Russia’s third-richest man -- has emerged as President Vladimir Putin’s favorite oligarch; he even got the Russian leader to show up for the June signing ceremony in London of the merger of his company, Tyumen Oil Co., or TNK, with BP.
That $6.15 billion deal, which covers oil and gas production, has made Fridman a household name in Russia. But he was already superrich from investments in oil, telecommunications, banking, food distribution and commodities trading funneled through his Alfa Group Consortium. That financial-industrial conglomerate was cobbled from the profits of a motley assortment of capitalist ventures -- from nightclubs to laboratory-animal breeding -- undertaken by Fridman as a university student and young factory engineer in the waning days of the Soviet era.
It’s the kind of incredibly swift rags-to-riches story that has induced investors to become bullish on Russia once again. Memories of the devastating financial crisis are fading. In the first six months of 2003, share prices on the local bourse, the Russian Trading System stock exchange, climbed about a third. Russian corporate bond issuance reached $3.5 billion in the same period, easily topping the total for all of 2002. And, fueled by oil exports, GDP grew by 4.3 percent in 2002 and surged at a more than 7 percent annual rate in the first half of this year.
Although most of Fridman’s Alfa Group investments are privately held, the publicly traded shares in the two telecoms controlled by the group -- fixed-line operator Golden Telecom and wireless operator JSC Vimpel-Communications, both with clients mainly in Moscow and St. Petersburg -- have easily outperformed the local stock market. Golden Telecom (Nasdaq symbol: GLDN) soared from a 52-week low of 10.15 last October to 30.55 in July. VimpelCom (NYSE symbol: VIP) rose from a 52-week low of 20.62 in July 2002 to 49.02 a year later.
Business oligarchs like Fridman continue to power the Russian economy -- and to hold the fate of minority shareholders in their hands. According to a December 2001 study by Brunswick UBS Warburg, a Moscow-based investment bank, eight financial-industrial groups control the 64 largest private companies in Russia. Among the prominent oligarchs cited in the study alongside Fridman and Khodorkovsky were Roman Abramovich (Russia’s second-richest man, who is merging his oil operations with Khodorkovsky’s), Oleg Deripaska (who owns the largest aluminum producer in the country) and Vladimir Potanin (who used part of his oil proceeds to corner Russia’s nickel output). Critics contend that this concentration of wealth creates barriers to competition, makes it more difficult for new businesses to get started and offers portfolio investors very limited choices on the local equity markets. The big financial-industrial groups “aren’t acting very differently from monopolies anywhere else,” says Christof Ruehl, chief economist at the World Bank’s Moscow office.”
Both the World Bank and the International Monetary Fund are urging Moscow to press ahead with structural reforms that would diversify the economy beyond its heavy dependence on oil and other natural-resource exports. With most banks linked to the big financial-industrial groups, credit is virtually unavailable for other businesses. “Sounder financial institutions and stronger financial intermediation will be key to improving the climate for private sector activity, particularly for small and medium-size enterprises,” asserted an IMF report in May. According to a World Bank study released last year, such businesses account for only 12 percent of Russia’s GDP, compared with more than 50 percent in the U.S. and much of the European Union.
Defenders of the Russian capitalist model argue not only that it isn’t broken but that it doesn’t need fixing. Only China’s economy is expanding faster, they note. Besides, say the optimists, oligarchs have moderated their hard-boiled approach to business. But skeptics remain. “With Russia’s kind of growth, it’s hard to convince people that business and banking reforms are urgent,” says Stephen Jennings, chief executive officer of Renaissance Capital, a leading Moscow-based investment bank.
Fridman is often cited as a paragon of the evolving oligarch. “He played some rough games earlier in his career,” says Marshall Goldman, a Harvard University economics professor whose recent book, The Piratization of Russia: Russian Reform Goes Awry, offers a scathing vision of buccaneer capitalism. “But nowadays he looks like one of the more enlightened entrepreneurs.”
Nothing better illustrates Fridman’s progress from notoriety to celebrity than his dealings with his new partner, U.K. oil giant BP. Even though BP once sued Fridman for seizing valuable petroleum fields for which the British company had paid close to a half-billion dollars, this past June BP signed a deal to pay $6.15 billion -- the largest foreign investment in post-Communist Russia’s history -- for half of Fridman’s TNK, which controls the same oil fields. Between these two bookends is a rough-and-tumble saga about “learning to do business in Russia -- the hard way,” says Robert Dudley, the BP vice president who has been named chief executive officer of the joint venture, TNK-BP.
It all began in 1997, when BP spent $471 million for a 10 percent share in Sidanco Oil Co., which owned rich deposits in western Siberia and was controlled by oligarch Potanin. Potanin plunged Sidanco deeply into debt, and Fridman, the rival oil tycoon running Alfa Group, swiftly moved to take over the Sidanco subsidiaries that held the largest petroleum fields. In 1999, Fridman had a Siberian court declare the Sidanco units bankrupt and then purchased them cheaply for his own company, TNK.
“Legally, we acted properly,” says Fridman. “True, our bankruptcy laws can be contradictory -- even our judges don’t always understand them.”
Fridman says that BP was an unfortunate bystander in his battle with Potanin, but he insists that the British company refused to listen to his explanations and instead took legal and political action against him. Besides fighting TNK and Fridman in Russian courts, BP sought to regain the oil fields by appealing directly to Putin and then prevailing upon British Prime Minister Tony Blair to make a written plea to the Russian leader. In Washington, BP lobbyists stalled a $500 million loan that TNK was seeking from the Export-Import Bank of the United States. But all this global clout didn’t mean much in Moscow or Siberia. “BP is a big, influential company in the world,” says Fridman. “On the other hand, in Russia we are stronger.”
So why did these bitter foes become partners? BP was driven by the need for new reserves. With oil fields in Alaska and the North Sea depleting, Russia offered the most promising venue outside the Middle East. And in Siberia, Fridman controlled some of the most attractive fields, including the Sidanco properties. BP dropped its legal and political actions against Fridman and began exploring the possibility of going into business with him. Not wishing to be gored again, BP first tested Fridman’s reliability by purchasing an additional 15 percent of shares in Sidanco in 2001. According to BP’s Dudley, there were no hitches in co-managing Sidanco with TNK or getting Fridman to agree on long-term company strategy. Convinced it could work with the oligarch, BP signed the deal with TNK earlier this year, creating the third-largest oil company in Russia, with assets of about $14 billion and production of some 1.2 million barrels a day.
“Sometimes you can build mutual trust through adversity,” says Dudley. Still, BP must have wondered again about its new Russian partner’s trustworthiness when a few weeks later, on the eve of the June 26 signing ceremony in London that would be attended by both Blair and Putin, an awkward hitch developed. It seemed that TNK had purchased an interest in another Russian oil company, Slavneft, last December, adding about $600 million in debt to TNK’s books. Apparently not informed about this extra burden, BP balked at paying the previously agreed-upon $6.75 billion for half of TNK and signed the final accord only after all-night negotiations reduced that figure to $6.15 billion. BP says that it may yet include the Slavneft stake in the joint venture but that it will insist upon some rigorous due diligence before deciding.
Though BP was paying a second time for access to the same reserves it had bought in 1997, it still got its Russian oil cheaply. According to a Renaissance Capital analysis, BP purchased TNK’s reserves at about one third the price per barrel that it would have paid for oil in countries with more reliable track records. Dudley concurs: “BP believes it paid a fair price, because the risks are clearly there.”
For Fridman, the deal was a no-brainer. With BP’s technical and marketing prowess, he says, “the company’s performance will improve, and our shares will rise many times if we decide to sell them in the future.” Some analysts view Fridman as the clear winner. “He took a global operator like BP and made them play to his terms,” says James Fenkner, chief strategist at Troika Dialog, a Moscow-based brokerage. Adds William Browder, chief executive officer of Hermitage Capital Management, a Moscow-based fund, “Fridman was one of the first oligarchs to figure out that his assets would become even more valuable if he brought in foreign investors.”
But Fridman isn’t gloating. He still has to contend with a $1.5 billion racketeering suit filed against him and his Russian partners in U.S. District Court for the Northern District of New York last year by Canada’s Norex Petroleum, another minority shareholder in Sidanco’s oil units. “We’re demanding the return of the oil and other assets taken from us by TNK and Alfa Group,” says Norex president Phil Murray. Fridman responds that Norex is hoping for an out-of-court settlement. “But we are not prepared to bargain with them, because it’s a question of our reputation,” he says. “They are accusing us of terrible crimes.”
A smooth partnership with BP would go a long way toward enhancing Fridman’s reputation. Under the agreement BP’s Dudley will be in charge of the joint venture’s day-to-day management, while Fridman as chairman of the board will seek to smooth out any political road bumps and arrange further acquisitions. “One of the strengths of Russian partners is that they know the landscape and what new opportunities are out there,” says Dudley.
IN HIS METEORIC CAREER FRIDMAN HAS certainly demonstrated a nose for new business opportunities. Born in the Ukrainian city of Lvov, he came to Moscow in the 1980s to study metallurgical engineering. While still at university he earned money as a private window washer and as co-owner of a discotheque -- activities that were officially illegal in the Soviet Union. Later, though employed as an engineer in a state electrical-machinery factory, Fridman found time to start a private courier service, an apartment rental agency for foreigners, a company that imported cigarettes and perfumes and another that sold used computers. He even bred white mice for laboratories. Fridman says his business mentor was his grandmother, who owned a kitchenware shop back in Lvov. “When I first got started, I went to her for advice,” he recalls. “She told me, ‘Never have dealings with the Reds.’”
When Communism collapsed in 1991, Fridman was ready for the new, capitalist era. With the profits from his sundry businesses, he paid the required $100,000 fee to establish a bank -- Alfa Bank -- that would become the core of his Alfa Group Consortium, which has holdings in oil, telecommunications and supermarkets, among other ventures. Fridman’s Alfa Group has often acted in partnership with Access/Renova Group, a New Yorkbased investment firm owned by Russian émigrés Victor Vekselberg and Len Blavatnik. Alfa and Access/Renova each owned half of TNK and now hold equal 25 percent shares in TNK-BP.
The sale of state companies to the new private sector was marred by bribery, phony loans-for-shares schemes and the hiring of private paramilitary forces to seize disputed properties. In 1995 alone more than 400 businessmen and their political associates were murdered by rivals. “It was no different from the Wild West in the U.S. 150 years ago,” says Fridman.
Fridman emerged from these capitalist wars with a mega-fortune, thanks in large measure to his being part of a group of seven entrepreneurs who helped finance Boris Yeltsin’s 1996 presidential election campaign. Grateful for his unexpected victory, Yeltsin allowed these men to acquire for a pittance some of the state’s most valuable natural-resource and industrial enterprises. When Putin ran for president three years ago, he vowed that “oligarchs will cease to exist as a class.”
But aside from Boris Berezovsky and Vladimir Gusinsky -- who were forced abroad after clashing with Putin -- the new president allowed the oligarchs free rein until recently. In fact, there are now 17 known Russian billionaires. But with parliamentary elections in December and his own reelection campaign pending next March, Putin appears to have turned up the heat on some of the oligarchs, who as a group are deeply resented by many voters. Khodorkovsky, the Yukos oil tycoon, has been the main focus of this campaign. In early July Russian police arrested Platon Lebedev, a close Khodorkovsky associate at Yukos, and accused him of stealing state property during the 1994 privatization of a fertilizer plant. Since then police investigators have searched Yukos offices, presumably for damaging evidence against Khodorkovsky. The incidents come several months after hints by Khodorkovsky that he might someday run for president and after he announced his financial support for several political parties that oppose Putin.
Like most oligarchs, however, Fridman is a heavy contributor to the United Russia Party, the political entity most closely linked to Putin, who remains highly popular and heavily favored to win a second term. Fridman leaves no doubt that he will support Putin and the United Russia Party. “Under Putin the right of business to exist is no longer in question,” says Fridman, who points out that threats to businesses and their owners were commonplace during the Yeltsin era.
Business-related murders have dropped to about a score a year. Heavily armed private security squads have almost disappeared. Nowadays, Fridman rarely deploys more than a couple of visible bodyguards and feels safe enough to indulge his passion for jazz at Moscow clubs on sudden whims (though apparently he worries enough about his family’s safety to install his wife and two young daughters in Paris, where he visits them on weekends). The tycoons’ new image is reflected in their clothing: Gangsta-rap leather jackets are out; Armani suits are in. Even more startling, oligarchs have become cultural philanthropists, and Fridman is among the most generous, contributing hundreds of thousands of dollars each year to the arts, especially the Bolshoi Theatre (see box at left).
Most of Fridman’s philanthropy falls under the auspices of Alfa Bank, the enterprise he uses to project his more modern, sophisticated business side. With a net income of $105 million on assets of $4.12 billion at the end of last year (compared with $85 million in net income on $2.7 billion in assets in 2001), Alfa is the largest private bank in Russia. But it still holds less than 5 percent of a market dominated by state-owned Sberbank, which last year had $33 billion in assets, 40 percent of total bank deposits and 30 percent of all loans.
Alfa Bank CEO Pyotr Aven points out that the state bank can offer lower interest rates on loans than his bank because of its near-monopoly on the savings accounts of pensioners, military personnel and just about anybody living outside the major cities. “Sberbank’s presence destroys the possibility of fair competition,” Aven says.
Nonetheless, Alfa, which made its mark in corporate lending, is moving relentlessly into the less-profitable retail sector. “We want Alfa to be more ‘sellable’ -- and at the highest possible price -- should we decide to sell it someday,” says Aven, who believes that if Alfa becomes a stronger universal bank, it will increase its allure to potential buyers abroad. This year it is launching 25 Alfa Express outlets in Moscow -- highly automated, minimally staffed branches that appeal to upscale clients. But for now Alfa arouses little interest among foreign buyers. Says a Moscow representative of a large Western bank, “No private bank has a significant enough market share to make it worth buying.”
Alfa currently has a B credit rating from Standard & Poor’s, placing it near the top of Russia’s private banks. But Alfa has inevitably been tainted by the weaknesses of the Russian banking system. According to an April report by S&P, up to 75 percent, or $43 billion, of all corporate loans by Russian banks are “problematic” and “face a high degree of risk.” Moreover, the bulk of these loans were made to the oligarchs who own them. “Many private banks exist to serve their financial-industrial groups,” says Ekaterina Trofimova, the S&P analyst who wrote the report. There is a near-absence of credits for small and medium-size enterprises, or SMEs, which play a much smaller role in Russia than in Eastern Europe.
Fridman acknowledges Alfa’s fondness for related-company loans. And though he concedes that more SMEs would create a healthier, more balanced Russian economy, he makes no excuses for virtually ignoring smaller enterprises (they receive less than 10 percent of Alfa’s commercial loans). “If we continue to loan to our group companies, it’s because they are fast-growing, profitable businesses that are much safer clients,” he says. He also dismisses criticism by credit rating agencies that Alfa Bank should reduce its exposure to related companies in favor of less-risky government bonds. That advice, he points out, would have been disastrous in the 1998 financial crisis, when the government defaulted on many of its debts. Thanks to holdings worth hundreds of millions of dollars in oil producer TNK, a related company, Alfa Bank was able to weather the storm and distinguish itself as one of the few banks that continued to allow withdrawals by its customers.
Over the past three years, Alfa has in fact reduced its loans to related companies to about 15 percent of its portfolio, a low share compared with other Russian private banks. “Alfa has improved in this respect more than almost any other bank,” says Trofimova, “but it continues to abuse its balance sheet by taking on too much credit risk from its group companies.” As a glaring example, she cites the use of Alfa Bank loans to finance Alfa Group’s acquisition of a controlling 48 percent stake in Golden Telecom, a fixed-line telecom operator that targets mainly corporate clients in the major Russian cities. With a current $749 million market capitalization, Golden Telecom had $29.8 million in net income on revenues of $199 million last year, compared with a loss of $39 million from $140 million in revenues in 2001.
For Fridman, though, Golden Telecom is a fine example of the synergy between the bank and the rest of Alfa Group. “Banking isn’t so profitable as our other investments, but when we make loans, we become aware of new business opportunities,” he says. “That’s how we got into the telecom sector.” Besides Golden Telecom, Alfa has a 25 percent stake in JSC Vimpel-Communications, the second-largest cellular phone company in Russia, with a market capitalization of $2.1 billion and net income of $130 million from $768 million in revenues last year, compared with net income of $47 million from $423 million in revenues in 2001.
Rounding out Alfa Group’s holdings are commodities trader Alfa-Eco Group ($13.8 million in net income in 2002) and supermarket chain Trade House Perekriostok (net income of $7.9 million in 2002 on revenues of $305 million). But all these businesses -- banking, telecoms, commodities and retail -- are dwarfed by Alfa Group’s oil holdings in TNK and Sidanco, which accounted for more than 80 percent of the group’s net income of $800 million last year (virtually unchanged from $797 million in 2001) on total assets of $6.84 billion, despite the huge run-up in oil prices.
Though Fridman prefers to run his varied conglomerate wearing banker’s pinstripes, ensconced in Alfa Bank’s elegant Moscow headquarters, the bulk of his fortune comes from the rough oil trade in the Siberian wilds. According to Forbes magazine, he has a personal worth of $4.3 billion, behind only Khodorkovsky and Abramovich, who agreed to merge their oil companies, Yukos and Sibneft, after the TNK-BP deal was announced.
Fridman views himself as an investor more than an oilman or a business manager. He intends to funnel most of the proceeds from any enterprise he sells back into Russia’s bountiful oil and gas fields. “He needs businesses of the scale that only natural resources can provide,” says Renaissance Capital’s Jennings, meaning that no other businesses can provide the huge returns that Fridman insists upon.
Those are also likely to be the businesses that will continue to arouse the greatest interest among foreign investors -- and pose the biggest risks. Recently, progress has been made in improving transparency, strengthening minority shareholders’ rights and ensuring better corporate governance. The quality of corporate management has improved, according to some investment bankers and fund managers. Businesses are less likely to be stripped of cash and assets without any concern for minority shareholders. But perversely, corporate scandals in the U.S. have somewhat reduced the pressure for further business reforms in Russia. Nowadays it’s fashionable in Moscow to drolly point out that cases like WorldCom’s Bernard Ebbers and Enron Corp.'s Kenneth Lay aren’t unique to the U.S. “We still have some Siberian provinces that resemble Texas,” says Timerbulat Karimov, an oil and gas analyst at Aton Capital Group, a Moscow brokerage firm. “We even have our own Kenny Boys.”
Fridman couldn’t agree more. “Even in Western countries businesspeople don’t always follow the letter of the law,” he says. “No matter how much legislation is passed here, it still is going to take years for Russian businessmen to behave in ways that foreigners consider normal.”
Fridman on BP, investing and guns
Observers of Russia’s coarse capitalism tend to name Mikhail Fridman as their favorite oligarch. “A very disciplined investor” and “a guy with an understanding of business that few people here have” are some of the more positive comments he elicits. “At least he’s not linked to any awful stories of violence” goes the more grudging sort of comment. In an hourlong interview at his Moscow headquarters with Institutional Investor Contributing Editor Jonathan Kandell, Fridman spoke with his well-known mix of charm, candor and gallows humor about what investors can expect from Russia nowadays -- and about his own business plans.
Institutional Investor: What has to be done in the Russian business world to change the perception abroad that investing here is still too risky for minority shareholders?
Fridman: We understand the need for more transparency, international accounting standards and better corporate governance if we want access to capital markets. But the biggest problem for foreign investors is a lack of experience and understanding of the business climate here.
Should foreigners wait until Russian insiders have divided up the spoils before investing in the country?
It is very risky to participate in the privatization of a company at its earliest stages. This isn’t like investing in U.S. Treasury notes. People have to be ready for a fight, though hopefully they can do it in the courts nowadays instead of with guns [laughter].
BP at one point accused you of illegally seizing its oil reserves. How were you able to overcome all that bitterness and get BP to agree to a merger?
We both had to demonstrate flexibility and a deeper understanding of the other side’s motivations. Legally, we acted properly, and I think they now recognize this. As far as ethical considerations, that’s another matter. From BP’s point of view, our behavior was unreasonable.
Under the merger there is an equal partnership between BP and your Tyumen Oil Co., but who has the ultimate say in case of disagreements?
President [Vladimir] Putin asked us the same question. The answer is, we have an informal but clear understanding of each side’s sphere of responsibility. Everything concerning technical issues will be in the hands of BP. Of course, our decisions will prevail in everything concerning Russian issues. The biggest potential conflict could arise in strategies abroad. For example, Tyumen wants a presence in Eastern Europe, and that might put us in competition with BP operations in those countries.
What are your strategies for your telecommunications companies?
We don’t intend to keep anything until we die. But it is a matter of deciding when it is best to sell. In the case of selling one half of TNK to BP, it made sense because it would improve the company’s performance and value. In telecommunications it makes no sense to sell at this point because we are in the early stages of a very fast-growing market.
Is Alfa Bank for sale as well?
Eventually, we will sell or merge with a foreign partner. But it’s premature for now because Western banks aren’t very active in Russia yet, and we wouldn’t get a good enough price.
Where do you think you will make future investments?
Energy is still the most promising business in Russia. The oil market has more or less been divided up. But we are just at the beginning stages of the natural-gas market. Sooner or later the reform of the gas market will be carried out, and we want to participate.
Views on the Russian economy seem to be polarized, with many investment banks extolling its high growth while organizations like the International Monetary Fund and World Bank warn of serious problems ahead.
That reminds me of what Tolstoy wrote in Anna Karenina: “Happy families are all alike; every unhappy family is unhappy in its own way.” We are a country of many unhappy families, and there is no one cure for our troubles. But to really know what Russia needs, you have to live here for many years not just be a foreign expert on a short stay. Outsiders ask how we can live with so much turbulence. But we have adapted, and things are getting better. We are ready for whatever comes.
You are only in your 30s and already a multibillionaire. Where do you want to be 20 years from now?
My goal is to lead as interesting a life as possible. I still prefer spending time at the office to going on vacation. As long as I feel that way, I’ll keep doing the same thing.
Ballet school Becoming a major patron of the opera has always lent a patina of class to new money, no matter how outrageously that money was acquired. Jay Gould and J.P. Morgan, robber barons of America’s Gilded Age, contributed heavily to New York’s newborn Metropolitan Opera. Now, more than a century later, Mikhail Fridman and Russia’s other maligned oligarchs are making generous donations to the Bolshoi Theatre, home to Moscow’s legendary opera and ballet companies.
Representatives of a dozen private enterprises, including Fridman’s Alfa Bank, each pony up $250,000 a year to sit on the Bolshoi’s board of trustees. Though Fridman neither likes opera nor attends performances, he knows that such contributions can enhance his public image. “Russia has always been proud of the Bolshoi,” says Alexander Gafin, the Alfa Bank vice president who sits on the theater’s board of trustees.
The injection of private philanthropy comes not a moment too soon for the Bolshoi. Built in 1856, the former cultural jewel box of czarist and Soviet Russia has deteriorated so seriously that the theater itself poses a safety threat. “If renovation is put off any longer, there will be nothing left to renovate,” Tamara Nosenko, a Moscow representative of the United Nations Educational, Scientific and Cultural Organization, warned in a June press conference. The rot isn’t evident from the orchestra and dress circle seats, where tuxedoed and gowned season ticket holders can gaze around at all that luxurious red velvet and gilded plaster. But with rescue efforts barely under way, a peek behind the scenes reveals a drearier reality. Stage machinery hasn’t been replaced since the start of the 20th century. Paint peels from corridor walls; floors creak; musicians squint at tattered score sheets. It’s easy to imagine a Phantom lurking in those dark, musty stairwells and basement chambers.
The Bolshoi was kept afloat as a cultural showcase during the Communist era, but the 1991 collapse of the Soviet regime plunged the theater into crisis. Budgets were cut, and administrators had no idea how to find new, private sources of financing. “They knew nothing of fundraising, nothing of market forces like what productions would draw audiences and how much customers should be charged,” says Anatoly Iksanov, who took over as the Bolshoi’s general director three years ago.
The capitalist underpinnings of the new cultural era were no mystery to Iksanov. In 1991 he was studying theater management in the U.S. on a Ford Foundation grant. Returning to Russia, he wrote a book on American fundraising techniques that gained him an invitation to head the Bolshoi. Because his budget precluded hiring a large staff to canvass widely for donations, Iksanov decided to seek the bulk of private contributions from a small number of big banks and businesses. Today 60 percent of the Bolshoi’s annual budget is covered by state subsidies, and the rest comes from philanthropy, ticket sales and the rental of the theater for social and corporate galas. The state-to-private funding ratio is on a par with Western European opera houses, though the Bolshoi’s $35 million annual budget is only a fraction of the expenditures at London’s Royal Opera House at Covent Garden or the Met in New York.
The transition away from state control wasn’t smooth for the artists. When Alexandra Dursenieva, a leading mezzo-soprano, joined the Bolshoi in 1994, the organization was ripped apart by dissension between state-coddled veterans and reform-minded newcomers. “Big-name old-timers were being pushed out,” she recalls. “I performed often abroad, so I could see how far behind the Bolshoi had fallen.” But lately, she adds, there is more money for musicians, singers, sets and new productions. “Famous foreign artists are invited to perform here,” she says. “We are moving forward in long strides, and all those bad years seem worthwhile now.”
To extend opera’s reach to a broader audience, Iksanov is looking into the possibility of radio broadcasts. Well aware that Texaco (now ChevronTexaco Corp.) sponsored Metropolitan Opera broadcasts on Saturday afternoons for more than six decades, he is hoping that a similar arrangement with a big petroleum producer could benefit the Bolshoi. Fridman’s recent deal to merge his oil company with BP presents such an opportunity. “Maybe through Alfa we can get BP to join our board,” says the Bolshoi director, who adds that he hasn’t yet broached the subject with Gafin, Fridman’s representative on the Bolshoi board.
Over the past few years, the Bolshoi has rid itself of a mediocre repertoire of state-imposed operas and ballets heavily laden with Marxist ideology. But the struggle for artistic independence hasn’t ended with the new age of private philanthropy. “We make it clear to trustees and other private donors that they cannot interfere in the artistic field,” says Iksanov. Instead, he tries to keep them focused on their areas of expertise as business managers, bankers and lawyers: determining how spending can be cut and income targets met or how to best take advantage of the Bolshoi brand in marketing consumer products. “But there is always some big donor who will ask that his favorite opera or ballet be produced,” says Iksanov, “and we have to insist that what goes on stage is up to us.”
The most talked-about opera of the recently ended season was not any oligarch’s first choice: Imaginatively staged and sung in its original English for the first time in Russia, The Rake’s Progress by Igor Stravinsky told the story of a dreamy young man who unexpectedly gains a fortune but loses his moral bearings. Not the kind of allegory that’s likely to enthrall Russia’s new magnates. -- J.K.
