Red Wolves & White Knights

by Peter Kysel

  The local mafioso demanded to be paid for protection, but the insurance company refused to pay his fee. The CAIC, therefore, turned him down. By the time the replacement equipment arrived, winter set in again and construction had to be suspended for another six months. The process was repeated year after year. After several years, the thieves had stolen enough equipment to build their own mineral water plant. Except that they didn’t know how to.

  I met our site manager, insurance agent, chief of police and their advisor. These were our criminalised red wolves, who ruled this part of Baikal. They recommended me to pay protection money. Our meeting was just long enough to finish our coffee and pirozhki. I thanked them for resolv­ing our problems and left before they had time to open a bottle of vodka. I wanted to catch the flight from Irkutsk to Domodedovo Airport in Moscow. It was clear that the CAIC could not handle its diverse investment holdings.

  The solution, at the Baigal Water Company, would have been to move the equipment to another location. A plant had to be constructed during the summer. Once opera­tional, it could be more easily protected, but we didn’t have the staff to do it. We needed to find someone who under­stood the potential of this project. But, who?

  Avio-kompanija Baikal flew only one aircraft, a leased Boeing 757-200. The flight was five and a half hours long, across five time zones. The airline was unsafe. Four years earlier, its Tupolev 154 crashed on the same route, when the crew refused to believe the instrument warning that one of its engines had caught fire.

  Thinking of my hosts, I remained tense throughout the flight to Moscow. I refused to eat, drink, or sleep on board, worrying that I might suffer an unexpected heart attack. I began to calm down after I changed airlines in Moscow, but relaxed only when I landed back in London, where I had another trip lined up, this time to a warm climate.

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  Uzbek Juice

  Fergana valley in Uzbekistan is a fertile province irrigated by the Syr Darya river. It produces large quantities of cotton and fruit. Surprisingly the country had no juice making plants capable of production and export. For decades, the Soviet population went without fruit, while it was left rot­ting on the ground in Uzbekistan.

  Uzbekistan became independent on 1st September 1991 under its president, Islam Karimov. He was a Soviet bear who ruled with an iron fist. Three-quarters of the Uzbek population were Muslims. Following independence, the country experienced social tension and religious unrest. Its economy shrunk and the currency collapsed. Forty-three soums to the dollar in 1996, crushed to a black-market rate of 500 soums by 1999. The average Uzbek lived on $400 a year. Corruption was endemic.

  The idea of building fruit juice plants was sensible, but quickly ran into difficulties. The CAIC had imported state of the art Tetra Pak equipment in 1996 and built two juicing plants in the centre of the Fergana valley, one in Andizhan and the other in Shakhrisabz, near Samarkand. They had a combined annual capacity of 40,000 tonnes of juices. Local managers claimed that the plants produced only 1400 tonnes and the accountants certified that the plants were losing money. Both plants were given five-year tax breaks.

  On landing in Tashkent, I strolled through the street mar­kets. Unexpectedly, almost every stall was selling our Tetra Pak packaged fruit juices, at massively discounted prices. Our policy had been to export the juices as a premier prod­uct. It was obvious that our plants produced more than 1400 tonnes of juices. Throughout the visit, I was shad­owed by two men in ill-fitting suits, obviously the SNB, the Uzbek secret police.

  I boarded an old Antonov aircraft for Andizhan and counted six people crowding into the cockpit with the pilots. The captain of our Uzbek aeroplane was running a private transport business in the cockpit. I began to panic when the aircraft shook and rattled as we started to taxi down the runway, but fortunately the flight was uneventful.

  The manager of our Andizhan Durdonasi plant, Inomjon Shakirov, presented me with a heavily embroidered Uzbek chieftain’s purple velvet coat and hat. Wearing it and look­ing like a wizard, I was escorted around the plant. Everyone crowded around me for a photo opportunity and my busi­ness visit turned into a celebrity event. My questions were to be answered over a celebration lunch in the company’s dining room for a dozen Uzbeks and me. Most of the pro­ceedings were conducted in Russian.

  A large, cast iron, black pot was placed in the middle of the dining table, containing meat floating in a yellowish sauce. Each place setting was laid with a bottle of brandy, vodka, and Pepsi and a plate of raw vegetables. Shakirov rose to his feet

  “Gospodin Pyotr, I drink to the success of our joint venture,” he declared enthusiastically, raising a glass of vodka. It was out of the question to toast with Pepsi, so given the choice of drinks, I chose vodka. It was the least likely to make me sick. We all stood up and knocked back our glasses. It was then up me to propose the next toast in my wizard’s coat.

  “To the friendship of the Uzbek and British people,” I declared in Russian and we knocked back another vodka. Then another Uzbek stood up and the process was repeated. I avoided the raw vegetables and figured that the contents of the central pot, would be sterilised having been boiled and that the vodka would help too. Earlier, I had noticed that an open sewer from the toilets ran through the kitchen.

  I don’t remember how the lunch ended, but I assume that when I slipped under the table, I was carried out, bundled into a car and sent back to the hotel. They avoided my ques­tions, transformed me into a figure of fun and, without doubt distributed photos of me, dressed in that ridiculous outfit, throughout the province.

  At least vodka was good. I woke up the following morning without a hangover, went straight to breakfast and then to the airport and back to London. My subsequent return visits followed a similar pattern. I acquired several wizard coats and each time became unconscious in the line of duty.

  I estimated that our plants produced at least 20,000 tonnes of fruit juice annually. A third of the output was pilfered by our managers and CAIC lost $10 million of profit. The plants were losing money, yet their managers demanded more cash to expand. We were unable to find a reliable supervisor, who would be prepared to take on the job, with­out getting involved with the local red wolves. Personally, I was worried about the state of my liver.

  The Uzbek tax inspectors hit us with corporation tax. It was bizarre. The plants were on tax holidays and yet were losing money. We were being squeezed by the people of influence in the capital.

  I went to see the head tax inspector in Tashkent and offered to sell our juice plant. Tax demands were not even discussed. He made a short telephone call and became quite jovial.

  “I tell you confidentially that our dear president’s daugh­ter, Gulnara Kamirov, was born in the Fergana valley,” he gushed, and I contributed

  “She is a lucky lady, the valley is so fertile, it’s a paradise on earth”

  “Yes, she feels a close affinity with your project and would be prepared to pay you a good price. You have done our country a great service by bringing us Western technology,” he explained. I kept quiet about their strong-arm tactics.

  “It’s so very difficult for you to control the pilfering of juices from your plants. We see them being sold everywhere at low prices,” sympathised the inspector, inviting me to respond. I was convinced that he was an SNB agent and that a wrong response would land me in prison. I wiped the sweat from my forehead and remained silent.

  “But I still want to know, why you want to sell,” he insisted. I tried to be careful.

  “You know, we are finding it difficult to manage the local managers and accountants.” The inspector was relaxing now and patted me on the shoulder.

  “Send in your representative and we’ll sign the purchase contract.” He paused and laughed again

  “We’ll pay you a good price but keep this conversation between us. Your plant managers are in for a big surprise,” he added as I said my goodbyes.

  Not a bad outcome, but the sale requires a tough negotiator with local k
nowledge and some leverage. A foreigner, like me, will fail. We don’t want to be paid in soums or have our money frozen in Uzbekistan. I pity the plant managers. They will probably get ten years for tax evasion.

  We went through all the companies in the portfolio and studied the results from our visits. The CAIC holdings were imploding due to our lack of resources and poor corporate governance in the former Soviet empire. To salvage the investments, we needed to hand over the portfolio to some­one else. The CAIC had no secret formula for success, but simply stumbled into unfamiliar countries, and failed.

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  FT Fashions

  Fashion in the City of London was evolving in response to its rising global image. Bankers shed the antiquated dou­ble-breasted uniforms of their ancestors and replaced them, in the early 1980s, with flamboyant suits and garish pin­striped shirts.

  Further changes arrived in the 1990s. Lighter weight subtle pinstripe suits, worn with plain shirts became the norm. The influence of European designers was evident in the sharp, well cut suits. These changes spread to bankers’ accessories, shoes, ties, sunglasses, and watches. Trends in fashion reflected social status in the financial services.

  In 1998 the Financial Times published a series of articles on the de-stuffing of British bankers. Journalists were inter­ested in their overall image, not just their clothes. I was asked to comment on the new style from a British and European perspective. These articles became popular and led to the creation of the international style of an investment banker. Over time, they found their way into the FT’s new monthly magazine ‘How to Spend It’, where they attracted additional readership.

  Luckily, my foray into the world of fashion didn’t affect the performances of my portfolios. Recognition came from Standard & Poor’s Micropal, who awarded my Equity fund 3rd place amongst all European funds in 1998. This positive media coverage brought us more funds to manage and my job remained secure

  Chapter 17

  Michael’s Company

  Our search for a respectable buyer of CAIC holdings was fruitless and Noel McEvoy suggested a change of tactics.

  “We need to find reliable corporate advisors to extricate the CAIC from its investments,” I called Michael, who had left Deloitte, and started his own corporate advisory business. He listened to my account of our experiences in Central Asia and chuckled.

  “Coincidentally, I left my previous job because of an airline. Borby had stripped Aeroflot of its foreign earnings and then fired the staff to reduce costs.” It was good to hear of other people’s misfortunes.

  “Aeroflot has been a front for the FSB, whose agents must be livid. They have lost their jobs and must hate Borby now. You were right to leave.” Michael agreed.

  “The former FSB agent Litvinenko has divulged a plot to assassinate Borby. I’m going to keep my distance from Borby, for safety.” Michael then switched to his business plan.

  “Nina and I have launched a company and there is plenty of demand for our services. We should succeed.” This sounded encouraging. Michael had the right contacts and experience, but I had a further question.

  “Talking about Nina, how is she? Her former boss in St Petersburg, Anatoly Sobchak, had lost the mayoral elec­tion, and after being accused of fraud, he left Russia and sought political asylum in France.” Michael thought, before answering, “Let me explain. Four years ago, Nina left Sobchak’s office, and two years ago Borby recruited her former boss from St Petersburg, Vladimir Putin, into Yeltsin’s administration in Moscow. You met Putin briefly in St Petersburg. There is no talk of any connection between Sobchak’s alleged crimes and Vladimir and Nina. By the way, Nina is going to leave her job at Gosbank and come and work with me.”

  “Sounds good. I have an assignment for you. We want you to help us sort out the CAIC and if you like the idea, we’ll visit our companies together. Nina should join us, as I am sure that she could be very useful.”

  “Ok, let’s do it,” said Michael. We agreed to fly out for an inspection the following January. I was left pondering Nina’s role for a while but didn’t come to any sensible conclusions.

  Nina is well qualified for corporate advisory work in Russia. But, will she be good at it and will she be loyal to Michael? I’ ll get to know her better on the trip next year.

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  Aeroflot to Irkutsk

  After check-in for the Aeroflot flight to Irkutsk, Michael, Nina and I were ushered into a small waiting room, restricted to foreign passengers. We were alone. Just a few worn sofas and armchairs and photos of smiling Aeroflot staff. After waiting for an hour, an attendant came in to tell us that the flight would be delayed for a further three hours. She brought us sandwiches and tea. At the appointed time we were picked up and taken along the tarmac to the Russian made Ilyushin Il-86. We climbed the few steps into the aircraft, depositing our suitcases in the luggage racks on its ground floor and climbed the internal spiral staircase to the upper, deck. We were the first passengers to board and Michael explained,

  “There is Soviet logic at work. We paid five times more for our tickets than ordinary Russians, so we are in effect first class passengers, but because Aeroflot firmly rejects any class system, all seats are designated as standard.”

  The attendant showed us to our three seats in the first row and left to usher in the rest of the passengers. As they boarded and some tried to claim our seats, the flight attendant led them off, to seats somewhere at the rear of the plane. We agreed that Aeroflot must have designed the system to make sure that ordinary Russians would despise the foreigners, who appropriated their seats. There was to be another long delay and I excused myself to go to the toilet. On the way, a stewardess winked at me conspiratorially.

  “Do you fancy a cigarette?” I nodded and she squeezed me into a lift which took us to a small kitchen on the lower level where four other attendants, were all having a smoke. I joined them, offering them my Davidoffs, and asked about the delays.

  “The airport has refused to supply fuel without pre-payment. Our captain has gone to a bank to get the cash and we’re still waiting for him. Why don’t we have a drink?” Sitting on beer crates, we did just that and the time passed pleasantly until the captain returned. I took the lift up to the top floor and re-joined my companions.

  Half an hour into the flight the food was served in tradi­tional Aeroflot style. First stewardess arrived with an armful of plastic trays and distributed them. Another stewardess followed, with a tray of Russian rye bread. A third steward­ess distributed chicken legs and the last two stewardesses brought bottles of water and paper napkins. These were our rations for the six-hour flight.

  Nina had anticipated a shortage of food on board, had brought chocolates and we shared them. There was no inflight entertainment, allowing us to get some sleep. I looked at my watch as we descended to Irkutsk airport, it was 2am. The large aircraft landed on a snow-covered runway, which the pilot managed to negotiate skilfully, without skidding and the Ilyushin came to a safe halt.

  “I noticed that we passed the lights of the arrival hall some while back,” Nina said.

  “Let’s get out. Our luggage is downstairs,” said Michael, a bit confused. We followed the other passengers down the staircase, collected our cases and stepped out of the aircraft onto the snowy runway.

  It was dark around us and the temperature was around-30 degrees C. There was no one to guide us. The passengers began to move forward in single file and we followed them. The first passenger reached a wire fence, pulled it sideways, stepped through, walked up to a house beyond the runway and entered. Two hundred passengers stood outside the fence, confused as to where to go. The aircraft doors had been shut, with the crew, presumably still inside.

  Someone pointed to the lights on a building about a kilome­tre away and began to walk towards it, through the snow­drifts. The rest of us followed. About half an hour later we arrived at the combined arrival/departure hall. There were a few solitary lightbulbs somewhere high up in the ceiling.

&
nbsp; Crowds of people from Europe, Asia, Siberia in their dis­tinct ethnic clothes, milled around in the semi-darkness. Clouds of cigarette smoke hung from the ceiling and the heating didn’t work. It resembled a scene from the Star Trek movie. All available seats were occupied. I felt a sense of panic thinking We might not get out and if there is a snow­storm, we could be stuck for days. This place is depressing with no food for sale and revolting toilets. Why do I have to be here? Michael touched my shoulder with a reasonable suggestion

  “Let’s see if our driver is still outside” Despite our late arrival, our saviours were still waiting in a Volga car, with a large sign in the window. I have never been so relieved to read my name.

  “Please, take us to our hotel,” we cried. On arrival food was brought to our rooms, which were clean, warm and had bathrooms. By 4 am I was finally falling asleep, having moved from hell to heaven within the last hour. The inspec­tion would start the next day. Our visit was to last a week and I vowed that I would never again agree to make a trip into deepest Russia.

  We visited CAIC’s companies, prospective buyers and local government officials. I took a step back, allowing my young companions to deal with the counterparties. I observed how Nina commanded attention beyond her natural femininity and business acumen. She exuded an authoritative presence. When the three of us were alone, I asked an occasional question about her background but didn’t learn much. Nina sensed my curiosity. On our last flight from Irkutsk to Moscow, she joined me for a chat and a drink, while Michael slept. I welcomed the chance to get to know her better.

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