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For a businessman renowned for steering clear of politics, Oleg Deripaska, chief executive of Rusal, is unusually frank about Russia’s ills.
Take his view on Pussy Riot. Two members of the feminist band were given controversial jail sentences last year for performing a “punk prayer” in Moscow’s main cathedral, a punishment that was condemned as draconian by human rights campaigners in Russia and abroad.
Mr Deripaska agrees with them. The case, he tells the Financial Times, highlights the inefficiency of the Russian law enforcement system: if it had “worked properly”, the women would have been sentenced to 15 days’ community service. Instead they were detained for too long, and the system then had to justify itself by putting them on trial. Or as he puts it, “someone had to cover their ass”.
“The Russian law enforcement system is so strong that it will defend itself ’til the last bullet,” he says, adding that the Russian FSB security service is now “twice as big” as the Soviet KGB.
The comments are unusual for a man renowned as much for his political nous as his legendary managerial skills and vast wealth.
Mr Deripaska forged his industrial empire during the often-violent scramble for aluminium assets that ensued after the Soviet Union’s collapse. Some of the oligarchs who amassed huge fortunes in those chaotic years fell out of favour with the Kremlin and ended up in exile or, in the case of Mikhail Khodorkovsky, the former chief executive of Yukos, in prison. Unlike them, Mr Deripaska has remained in favour.
That has paid dividends for his business. In the aftermath of the global financial crisis and the collapse in demand for commodities, Rusal was hit hard. Swamped with debt, some predicted it would be seized by creditors. But in 2009, an agreement by the Russian government to prolong crucial loans ensured the company’s survival.
Perhaps because of his dependence on the Kremlin’s largesse, Mr Deripaska is careful not to criticise President Vladimir Putin. On the contrary, he openly supports him. After all, “if there would be no Putin, who would run the country now? Of course not Kasparov”, he says, referring to the former chess champion turned opposition firebrand.
Instead, the firepower is directed against Russia’s big banks and monetary authorities, who he blames for the high interest rates that are sapping business confidence.
“Russia will not get any benefit out of World Trade Organisation membership unless we pay attention to these issues – the cost of capital and interest [rates],” he says.
It is a topical issue. Russia’s economy has slowed after enjoying years of strong oil-fuelled growth up to 2009. Gross domestic product grew 3.4 per cent last year, down from 4.3 per cent in 2011 – well short of the Kremlin’s 5 per cent target. Some businessmen have blamed the slowdown on the Russian Central Bank’s strict monetary policy. Mr Putin himself has expressed concern at the “troubling rise in interest rates” to a level significantly above the rate of inflation.
Mr Deripaska says the answer is to reform and restructure Russia’s banking system. The sector, he says, is too concentrated, with 72 per cent of credit issued by only five Russian banks, most of them state-owned. Small businesses struggle to obtain credit: loans are typically for three years at 15 per cent interest.
To illustrate the point, Mr Deripaska cites the example of Siberia. Eight years ago, cities such as Krasnoyarsk and Irkutsk each had five or six local banks that supported local industries such as construction, agriculture and light manufacturing, he says. These have been eclipsed by big state banks such as Sberbank and VTB, with the result that Siberians have to go to Moscow to arrange any loan of more than $10m.
Another problem he identifies is the rising cost of energy. The price of Russian natural gas is now nearly double that of US domestic gas. He blames Russia’s energy giant Gazprom, which is pushing for subsidised domestic gas prices to be allowed to converge with export prices on a netback basis.
He also faults Gazprom for being “preoccupied with its business in the west”, that is, Europe – at the expense of fast-growing Asian markets. The solution, he says, is to break the company up, forming two distinct entities – one focused on the west, its traditional market, and the other on the east of Russia, which has huge gas reserves but has been starved of investment.
“For the benefit of the Far East and eastern Siberia, Gazprom should be split,” he says. He also deplores what he calls Gazprom’s “rent-seeking” behaviour.
Mr Deripaska is pessimistic about the prospects of eradicating graft in Russia. “There is not enough prison capacity to fight corruption,” he says.
Additional reporting by Neil Buckley
Take his view on Pussy Riot. Two members of the feminist band were given controversial jail sentences last year for performing a “punk prayer” in Moscow’s main cathedral, a punishment that was condemned as draconian by human rights campaigners in Russia and abroad.
Mr Deripaska agrees with them. The case, he tells the Financial Times, highlights the inefficiency of the Russian law enforcement system: if it had “worked properly”, the women would have been sentenced to 15 days’ community service. Instead they were detained for too long, and the system then had to justify itself by putting them on trial. Or as he puts it, “someone had to cover their ass”.
“The Russian law enforcement system is so strong that it will defend itself ’til the last bullet,” he says, adding that the Russian FSB security service is now “twice as big” as the Soviet KGB.
The comments are unusual for a man renowned as much for his political nous as his legendary managerial skills and vast wealth.
Mr Deripaska forged his industrial empire during the often-violent scramble for aluminium assets that ensued after the Soviet Union’s collapse. Some of the oligarchs who amassed huge fortunes in those chaotic years fell out of favour with the Kremlin and ended up in exile or, in the case of Mikhail Khodorkovsky, the former chief executive of Yukos, in prison. Unlike them, Mr Deripaska has remained in favour.
That has paid dividends for his business. In the aftermath of the global financial crisis and the collapse in demand for commodities, Rusal was hit hard. Swamped with debt, some predicted it would be seized by creditors. But in 2009, an agreement by the Russian government to prolong crucial loans ensured the company’s survival.
Perhaps because of his dependence on the Kremlin’s largesse, Mr Deripaska is careful not to criticise President Vladimir Putin. On the contrary, he openly supports him. After all, “if there would be no Putin, who would run the country now? Of course not Kasparov”, he says, referring to the former chess champion turned opposition firebrand.
Instead, the firepower is directed against Russia’s big banks and monetary authorities, who he blames for the high interest rates that are sapping business confidence.
“Russia will not get any benefit out of World Trade Organisation membership unless we pay attention to these issues – the cost of capital and interest [rates],” he says.
For the benefit of the Far East and Eastern Siberia, Gazprom should be split
It is a topical issue. Russia’s economy has slowed after enjoying years of strong oil-fuelled growth up to 2009. Gross domestic product grew 3.4 per cent last year, down from 4.3 per cent in 2011 – well short of the Kremlin’s 5 per cent target. Some businessmen have blamed the slowdown on the Russian Central Bank’s strict monetary policy. Mr Putin himself has expressed concern at the “troubling rise in interest rates” to a level significantly above the rate of inflation.
Mr Deripaska says the answer is to reform and restructure Russia’s banking system. The sector, he says, is too concentrated, with 72 per cent of credit issued by only five Russian banks, most of them state-owned. Small businesses struggle to obtain credit: loans are typically for three years at 15 per cent interest.
To illustrate the point, Mr Deripaska cites the example of Siberia. Eight years ago, cities such as Krasnoyarsk and Irkutsk each had five or six local banks that supported local industries such as construction, agriculture and light manufacturing, he says. These have been eclipsed by big state banks such as Sberbank and VTB, with the result that Siberians have to go to Moscow to arrange any loan of more than $10m.
Another problem he identifies is the rising cost of energy. The price of Russian natural gas is now nearly double that of US domestic gas. He blames Russia’s energy giant Gazprom, which is pushing for subsidised domestic gas prices to be allowed to converge with export prices on a netback basis.
He also faults Gazprom for being “preoccupied with its business in the west”, that is, Europe – at the expense of fast-growing Asian markets. The solution, he says, is to break the company up, forming two distinct entities – one focused on the west, its traditional market, and the other on the east of Russia, which has huge gas reserves but has been starved of investment.
“For the benefit of the Far East and eastern Siberia, Gazprom should be split,” he says. He also deplores what he calls Gazprom’s “rent-seeking” behaviour.
Mr Deripaska is pessimistic about the prospects of eradicating graft in Russia. “There is not enough prison capacity to fight corruption,” he says.
Additional reporting by Neil Buckley
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