The history of the ferrous-metals sector in Russia over the last decade reflects closely the history of modern Russian capitalism. Under the old state-planning system, seven huge metals plants worked in different corners of the country from Cherepovets to Sverdlovsk. They had no shareholders, only directors. Then, privatization began and these plants began to look for shareholders. The process has never stopped since.

1991

Oleg Soskovets, the director of the Karaganda metals plant in Kazakstan, was transferred to Moscow to head the Soviet Metallurgy Ministry. Soskovets brought his deputy, Vladimir Lisin, with him to Moscow from Karaganda.

In June 1991, 400 metals companies from around the Soviet Union organized a metals exchange. Initial investments in the exchange went on to form the start-up capital of many of today's trading organizations.

The following month, Mikhail Zhivilo, a dealer on the Russian goods and commodities exchange, created the Metallurgical Company (MIKOM) along with his brother. Rumor had it that the man behind the Zhivilos was their father, a top metallurgical industry official, and that MIKOM was created so as to bring in Western loans to finance the reconstruction of the sector.

The Soviet Metallurgy Ministry was reformed into the Corporation of Ferrous Metals Producers (Roschermet). Soskovets pushed for development of the sector according to the "Chinese model" — through the creation of a state monopoly. When the ministry was disbanded in December 1991, Soskovets returned to Kazakstan, becoming first deputy prime minister.

1992

Privatization in the sector began with the sale of 34.3 percent of shares in the Saldinsky metals plant in Sverdlovsk Oblast, the oldest enterprise in the sector.

Vladimir Lisin, a graduate of the National Economy Academy, became deputy president of Trans-C.I.S. Commodities Ltd., an offshore company. This was also when the Trans World Group (TWG) began building its empire. Lisin managed the group's Russian activities until 1997.

In March, former Soviet Metallurgy Minister Serafim Kolpakov established the International Metallurgists' Union.

In June, the head of the Orsk-Khalilovsky metals plant (NOSTA), Pavel Gurkalov, asked his young deputy Yury Grinin to establish a daughter company in Cologne — Nosta Metallhandels. Eight years later, this simple operation would cost Grinin his life.

By the end of the summer, Soskovets had managed to quarrel with the reformers in both Russia and Kazakstan. He was forced out from his deputy prime minister job in Kazakstan, so he returned to Moscow.

1993

In February, the first privatization scandal broke out in the sector. The employees of Chelyabinsk steelworks (Mechel) accused the directors of illegally trying to buy a controlling stake in the company through the Tomet company. Mechel's director Rafshat Maksutov was forced to resign.

At a government meeting in March, Deputy Prime Minister Georgy Khizha proposed organizing coal and steel producers into vertically integrated holdings. Khizha soon designed a C.I.S.-wide metal and coal monopoly. It wasn't clear who was behind Khizha's project and so the metal industry lobby sank the project anyway, together with Khizha, who was soon dismissed.

Yegor Gaidar's government began full-scale privatization of the ferrous-metals sector. In May, auctions were held for 35 percent of shares in the West Siberia steelworks (Zapsib), and 27 percent of shares in Nizhny Tagil steelworks (NTMK). In November, 35 percent of shares in Kuznetsky steelworks (KMK) were auctioned off.

The Metallinvest bank was set up in the summer of 1993 on an initiative from Oleg Soskovets. Its aim was to grab control of the metals industry debt business from Menatep with the help of state loans. The bank then ended up changing hands until Rossiisky Kredit finally brought it under its control.

1994

Anatoly Chubais, then the head of the State Property Committee, had his first major clash with Soskovets. In February, the State Property Committee changed the procedure for privatization of the Magnitogorsk steelworks and blocked a decree on investment loans and export benefits for the privatized company.

In March, shares in the Cherepovets steelworks (Severstal) were put on sale at a Russia-wide voucher auction. Acting on the request of Severstal's head Yury Lipukhin, the company's financial director Alexei Mordashov organized the Severstal-Invest company to buy the shares.

Rumors appeared of splits in the TWG trading group linked to entrepreneur Lev Chernoi. Rumors ranged from Chernoi being fired from TWG to foreign shareholders pulling out of the group. It was at this moment that a pool of managers was created to set TWG's policy in Russia and the world over the next five years.

Mining and enrichment companies without export markets began to speak up about their rights to a slice of the metals industry profits. The chairman of the board of Karelsky Okatysh, Sergei Syunkov said he was preparing a cartel agreement between the Kovdor, Kostomuksha and Olenogorsk mining and enrichment companies. This step had the paradoxical result of sparking off an assets carve-up at the companies. Boris Ivanishvili and his Rossiisky Kredit group bought large lots of shares, and rebellion at three of the companies was suppressed a year later by Severstal.

In August 1994, unknown organizations went through Credit Suisse First Boston to buy 17 percent of shares in Novolipetsk steelworks (NLMK). The investors paid $1 billion for the shares. The local authorities and TWG, which managed the plant, called for the deal to be annulled. The secret investors did not come forward in any way and it was only a year later that they were revealed to be Vladimir Potanin's Interros and Boris Jordan's Sputnik. Conflict at NLMK was to simmer for another two years before turning into a full-fledged war.

In the winter of 1994, Soskovets, then deputy prime minister, reached the peak of his career. Just before the New Year, Boris Yeltsin called Soskovets his successor, and he wasn't joking.

1995

In April, RAO UES (Unified Energy Systems) launched a major action against Magnitogorsk steelworks. It attempted to set up a club of creditors who had lent more than 500 billion rubles to the company. Magnitogorsk steelworks refused to make good on the payments and opposed UES' with the help from Inkombank, Tveruniversalbank and Tokobank, three companies that wanted to see bill of exchange turnover increase at the steelworks.

Scandal broke out at Chelyabinsk's Mechel when its largest shareholder, private investment fund Social Protection for the Population of Chelyabinsk Oblast, consolidated half of the shares in Mechel and removed General Director Vladimir Prokudin at a shareholders' meeting, replacing him with Viktor Cherednyakov. Prokudin refused to recognize the meeting's decision, and the two general directors battled over Mechel for a year.

Also in April, a consortium of major Russian banks proposed that the government carries out loans-for-shares auctions of major industrial enterprises.

In May, the Seversky Pipe Plant became the first Russian metallurgical enterprise to issue ADRs on a controlling bloc of shares. Spreading its shares out among foreigners didn't save the plant's managers from significant changes. A few years later, MDM Group found the ADRs abroad and bought them.

In June, banks sent the government a list of the shares they were interested in buying through the loans-for-shares auctions. The metals sector companies such as Magnitogorsk steelworks, Mechel, Severstal, NLMK, Zapsib, NTMK and Oskolsk electrometallurgical plant (OEMK) were on the list. The directors of most of these companies demanded that Soskovets deletes them.

The conflict between Chubais and Soskovets grew more intense. Soskovets still wanted to unite all the non-privatized shares in metals sector companies into one state holding. Chubais wanted to sell them.

Their interests collided again over Magnitogorsk steelworks. The company's shares were included on the loans-for-shares list, the State Property Committee auction list and Soskovets' list. The results of an auction of state shares in Magnitogorsk steelworks, won by TWG, were cancelled. After a replay of the auction, 30 percent of the shares went to financial industrial group Magnitogorsk Steel, headed by Rashid Sharipov.

On Sept. 25, the list of companies included in the loans-for- shares auctions was published. NLMK, OEMK, Zapsib, NOSTA and Mechel were all on it. That day, Soskovets flew to see Yeltsin in Sochi and returned that evening with a decree creating Rossiiskaya Metallurgia — a new group bringing together Magnitogorsk steelworks, Severstal and NLMK. The decree was an open challenge to Chubais, but the State Property Committee won the battle, and Rossiiskaya Metallurgia existed only on paper.

In October, the State Property Committee put a 15 percent state-owned stake of Severstal up for auction, and gave the remaining 5 percent state stake to the company's employees. The owner and director of Severstal-Invest, Alexei Mordashov, was still sitting quietly, selling cars, breeding fish and selling Severstal metal in small quantities. But this didn't stop him from planning the removal of Severstal General Director Yury Lipukhin. In reality, the controlling stake in Severstal belonged to Severstal-Invest.

Debt problems at the beginning of November brought several metals companies to a halt. The Korshunovsky and Mikhailovsky mining and enrichment plants stopped work; Zapsib and Magnitogorsk steelworks came to a halt because of a working capital shortage, while coal shortages stopped production at Mechel and NOSTA. The entire Russian ferrous metals sector was essentially bankrupt.

The first loans-for-shares auction was held in Moscow on Nov. 17. Zapsib was up for auction, but it received no offers. Rossiisky Kredit was barred from participating in the auction for Norilsk Nickel, and also failed to acquire shares in Mechel, which were bought by the company's management. Vladimir Potanin's group acquired 15 percent of shares in NLMK.

In December, the Russian Federal Property Fund put the state-owned shares in NOSTA (12.7 percent) up for sale and carried out the first privatization of a metals sector company in Russia.

In December, General Director of Zapsib, Boris Kustov, sent the government a letter demanding devaluation of the ruble, preferential state loans and an introduction of prices set by the state for ore. If these demands weren't met, Kustov threatened to shut down the plant. In reply, Governor Mikhail Kislyuk threatened to arrest Kustov for "sabotage." A month later, Kustov resigned.

1996

On Feb. 8, the Stolichny Savings Bank declared its interest in the metals sector. This bank, headed by Alexander Smolensky, took out a $1 billion loan from German Commerzbank for technical re-equipment of steelworks in the Chelyabinsk Oblast. In other words, Magnitogorsk steelworks and Mechel. Viktor Khristenko, deputy head of the Chelyabinsk Administration ,actively lobbied the project. But neither Magnitogorsk steelworks nor Mechel ever saw the Commerzbank money.

On Feb. 16, the MIKOM group flexed its muscle. With MIKOM's backing, Nikolai Fomin, a former KMK's head, took control of the plant's management building and refused entry to the plant's director, Yevgeny Braunstein. This was the first time a company was seized with the help of the bailiffs. But the attempt failed. With the help of Gov. Mikhail Kislyuk, Fomin was removed from KMK and MIKOM's firm Germes-Metal-Invest was pushed out by an additional issue of 1000 percent of charter capital. One curious detail in this incident is that the chairman of the Oblast Legislative Assembly, Aman Tuleyev, lobbied MIKOM's interests.

In May, Alexei Mordashov was named general director of Severstal. Yury Lipukhin went to the meeting not suspecting his imminent dismissal, as he considered Mordashov his loyal colleague.

In June, representatives of Tokobank, Lebedinsky Mining and Enrichment Plant and Stiltexholding trading company signed an agreement setting up the Tokostil Holding. With the support of Stiltexholding head Vladimir Savelyev, Toko tried lending a hand to Lebedinsky head Vladimir Kalashnikov, who was at war with the plant's main shareholder, Rossiisky Kredit. Tokobank went bankrupt in 1997, and Kalashnikov was fired that same year.

On June 20, Soskovets, Korzhakov and Barsukov were all dismissed.

In July, Moscow's Kredobank announced it wanted Zapsib, which owed it 400 billion rubles, declared bankrupt. Boris Kustov, the company's head, took out the loan in 1994. The arrest of Zapsib's sales departments' bank accounts didn't help. Kredobank head Yury Agapov managed to persuade Yeltsin to sign a decree to support Zapsib, but the support program was never implemented and both Zapsib and Kredobank went under.

Alfa Group bought Kredobank's debts and tried to have Zapsib declared bankrupt, but the arbitration court gave Zapsib another chance.

In December, Willy Schtrothotte who headed Glencore, held talks with the management of German company Hoesch-Krupp about buying part of Mechel's production facilities. Mechel General Director Igor Toporishev opposed the deal, which didn't go through, thus ending Western metals companies' first and last attempt to establish themselves on the Russian market.

1997

In February, Kursk Governor Alexander Rutskoi began his attack on the Mikhailovsky mining and enrichment plant controlled by Rossiisky Kredit and its holding Metalloinvest. According to information obtained by Kommersant, Rutskoi wanted to replace the shareholders through a bankruptcy procedure, but the conflict was sorted out. Now, Rutskoi is Metalloinvest's ally in difficult negotiations with the region's new communist governor.

In March, MIKOM got the courts to annul KMK's additional share issue of 1996. Lawyer Damir Gareyev headed MIKOM's fight against KMK.

On March 4, the management of NLMK announced its plans to buy 40 percent of shares from its shareholder, TWG. TWG realized that it couldn't keep Onexim, which held a major stake in NLMK, away from the company. Lisin ended up alone at NLMK, facing Potanin. His chances looked slim.

In June, the Kemerovo arbitration court introduced outside management for Zapsib. Instead of an Alfa-Group member Boris Kabak, the court named Kuzbasprombank employee Andrei Voronin as Zapsib's manager. Kabak and Voronin battled each other in the courts until Alfa gave up the plant.

In early July, an attempt was made on the life of Kemerovo Deputy Gov. Dmitry Chirakadze. Two possible motives surfaced— the conflict between MIKOM and the KMK management, and the conflict between Alfa and Zapsib. (Chirakadze, previously a partner of Mikhail Zhivilo, was chairman of Zapsib's board of creditors).

The same day, Inkombank, with TWG's support, fired Anatoly Starikov, the head of Magnitogorsk steelworks. Chairman of the Magnitogorsk board of directors Rashid Sharipov proposed Viktor Rashnikov to replace Starikov. Sharipov ended up regretting his proposal — a year later Rashnikov laid criminal charges against him.

In the summer, entrepreneur Pavel Fedulov acquired a major stake in Kachkanarsky mining and enrichment plant. Fedulov planned to sell it to Ural-Start, a company backed by Kachkanarsky's General Director Djalol Khaidarov. Fedulov received 80 percent of the sum, but didn't hand over the shares and didn't give back the money. A criminal case was started against Fedulov, who ended up being tried for swindling. This laid the ground for "the battle for Kachkanarsky" — the biggest metals-sector fight of the decade.

In September, the International Metallurgists' Union headed by Serafim Kolpakov held a press conference to announce a new union in the Russian metals sector — without TWG. The new alliance got the name Soyuz-Metal-Resurs and brought together NLMK (Vladimir Lisin), Magnitogorsk (Viktor Rashnikov and Rashid Sharipov), Krasnoyarsk Aluminum Plant (Anatoly Bykov, Viktor Vekselberg and Gennady Druzhinin), Siberian Aluminum (Oleg Deripaska), Uralelektromed and Gaisky mining and enrichment plant (Iskander Makhmudov). NLMK and Magnitogorsk later left the union, but it was joined by Zapsib, KMK, NTMK and what remained of TWG with Mikhail Chernoi, Lev Chernoi's brother.

Two months later, Yeltsin signed a decree liquidating Rossiiskaya Metallurgia.

1998

A new team headed by Gennady Yunin took over management at KMK. The new Kemerovo governor Aman Tuleyev wanted to unite Zapsib and KMK.

In mid-July, MIKOM had KMK bankrupted, appointing Sergei Kuznetsov as a temporary supervisor there. This marked the high point in Mikhail Zhivilo's career — his group had become sufficiently wealthy to buy 5 percent of shares in Sberbank and make MIKOM a member of the bank's board of directors.

At the beginning of August, Vladimir Lisin announced that TWG was selling its stake in NLMK. If it wasn't for the financial crisis that broke out three weeks later, Lisin would have bought the shares himself, as confirmed by an agreement with TWG head David Ruben. But Lisin ended up buying a controlling stake from the Renaissance group (Boris Jordan had just divided his business with Vladimir Potanin), and TWG's shares went to Norilsk Nickel and Interros, which is to say they went to Potanin.

On Aug. 14, Kabak was removed from Zapsib and replacedby Igor Frolov from Kuzbassprombank.

At the beginning of September, Rossiisky Kredit sold 46 percent of its shares in Lebedinsky mining and enrichment plant to Swiss company Nacosta AG, which was friendly with OEMK. Nacosta AG now owned 50.01 percent, while OEMK had 41 percent.

1999

In March, the Kemerovo arbitration court extended external management at Zapsib for another 8.5 years and unexpectedly replaced the appointed manager, Igor Frolov, who had planned to auction Zapsib's assets.

In April, external management was introduced to NTMK.

Yevgeny Braunshtein, former head of KMK, was abducted at the end of the month. After a few days in captivity, Braunshtein escaped his abductors, who tortured him, but couldn't say who had abducted him and why.

In August, the Federal Bankruptcy Agency revoked the licence from KMK's external manager Sergei Kuznetsov. The Novokuznetsk Prosecutor's Office filed criminal charges against the KMK management. It alleged that MIKOM had taken money from KMK. Mikhail Zhivilo and Aman Tuleyev became enemies.

The Glencore group got sick of cooperating with Igor Toropishev, the head of Mechel, who didn't want to increase profitability at the expense of social programs. Toropishev was forced out in October, and was replaced by Alexei Ivanushkin, the head of Glencore's Moscow subdivision.

A national meeting in Nizhny Tagil, attended by Duma deputies and members of the Academy of Sciences, recommended that Gazprom and the government consider creating production facilities at NTMK for the manufacture of large-diameter pipes.

The Sverdlovsk arbitration court approved a settlement agreement between NTMK and its creditors. People from the Evrazholding appeared at the company. Alexander Abramov, who arrived then, still runs NTMK today. Some say that Iskander Makhmudov asked Sverdlovsk governor Eduard Rossel to hand the plant to him, but Abramov defended his own interests in the plant.

In December, the MIKOM group was pushed out of Chernigovets, a major coal deposit that supplied KMK and Zapsib. After storming Chernigovets, Mikhail Zhivilo sold the remaining coal assets Stiltex and Avtobank, which controlled NOSTA, and then left the ferrous metals sector.

2000

On Jan. 28, Iskander Makhmudov's team seized the Kachkanarsky mining and enrichment plant. The plant's owners, Damir Gareyev and Djalol Khaidarov, who considered themselves Makhmudov's partners, were accused of stealing shares from their rightful owner. Andrei Kozitsyn, the head of Uralelektromed, became the head of Kachkanarsky. This was the first and last public action of the Makhmudov group, which formally had nothing to do with ferrous metals. Makhmudov, who never appeared in public, quickly came to be seen as a demonic figure. After the Kachkanarsky incident, he was rumored to have interests in virtually all the companies in the sector.

At the beginning of February, British company Middlesex Holdings and Gazprom's subsidiary Gazprominvestholding announced the creation of an electronic steel trading system on the Internet. The system was never launched, but the Russian metals sector continued to mull over the idea of selling metals on the World Wide Web.

One of the first fruits of cooperation between Evrazholding and Makhmudov was that Yury Zverev became external manager at KMK. Zverev immediately announced the merger of KMK and Abramov's holding.

In March, MDM Group acquired a controlling stake in Volzhsky Pipe Plant from Rosprom. Rosprom man Vitaly Sadykov was replaced as general director by Ivan Li, the future director of the Pipe and Metal company, one of the two largest groups on the pipe market.

The following month, a NOSTA shareholders' meeting replaced Pavel Gurkalov as general director. Gurkalov was said to have been removed by Avtobank and Stiltex because he was preventing them from getting full control of the company. Andrei Andreyev, an Avtobank manager, took over NOSTA. He was followed by Viktor Klochai, former production director at Severstal.

In mid-April, Izhorskiye Zavody, part of Kakha Bendukidze's Uralmash Holding, sold Severstal stan-5000 equipment for making large-diameter pipes. Severstal carried out its threat to make pipes for Gazprom independently, and Gazprom refused to sign a contract for purchase of pipes from NTMK. This situation persists today.

In May, the Interros group and Norilsk Nickel acquired 34 percent of shares in NLMK from the TWG group, but didn't agree the deal with Vladimir Lisin. Interros immediately an NLMK additional share issue at a shareholders' meeting. In reply, Lisin announced the sale of NLMK subsidiary company, the Stinol refrigerator factory, to Italian company Merloni. The battle between NLMK and Interros lasted a year — Potanin refused to let the additional share issue go ahead, but he agreed to invest $200 million worth of bank loans into developing NLMK.

On June 8, Yury Grinin, the head of Nosta Metallhandels, was killed in Moscow. Two weeks later, Andrei Andreyev announced that the NOSTA-Avtobank-Stiltex Holding would be registered at the end of the year. Pavel Gurkalov became advisor to the head of the holding.

In early August, news services reported the disappearance of Mikhail Zhivilo. Law enforcement agencies began investigating. They wanted to arrest Zhivilo for attempting to poison Kemerovo Gov. Aman Tuleyev. Instead of Zhivilo, they arrested Olympic biathlon champion Alexander Tikhonov and his brother, both partners of Zhivilo. Zhivilo himself soon turned up in Paris, but French courts considered him a "prisoner of conscience" and refused to extradite him.

Later that month, Alfa-Eko and Evrazholding signed a peace agreement in the Moscow arbitration court on restructuring Zapsib's debts. Under the agreement, Evrazholding had to pay $110 million to Alfa-Eko and get control of Zapsib. In this way, Alexander Abramov, who sought a union with the small Kachkanarsky mining and enrichment plant a year before, ended up controlling 40 percent of Russian ferrous metals.

In late September, MDM Group acquired 36 percent of shares in Kovdorsky mining and enrichment plant, which supplied Severstal. Severstal didn't suffer in the deal — Kovdorsky didn't change its sales policies.

The same month, a battle began for STZ. A LUKoil subsidiary bank, Petrokommerts, and the MAIR group, a major ferrous scrap metals trader, were working on consolidating its shares. The battle had a paradoxical outcome — MDM Group acquired it in January 2001 and turned it into the VTZ pipe and metals company.

In October, Severstal acquired 45 percent of shares in the Urals Car Plant and took over almost all its debts. This marked the arrival of the metals sector in the car industry.

On Dec. 9, President Vladimir Putin flew to Magnitogorsk for the Presidential Judo Tournament, organized by the Magnitogorsk steelworks. "Concerned steelworkers" took the occasion to tell Putin that "Makhmudov and the Chernoi brothers are shutting down steelworks." Putin diplomatically replied that competition is the engine of progress, but that it must keep within the law. This amounted to Putin extending his protection to Magnitogorsk and criminal proceedings against Rashnikov and his team were stopped. Putin's judo kimono was hung in the steelworks' museum like a holy relic.

At the end of December, information appeared about the creation of a group called Russian Steel. The media reports said that Makhmudov had decided to carry on the work of Soskovets and the TWG group by uniting all available metals companies in the country into a single holding on the lines of Russian Aluminum. The shadow of the "Chinese approach" had again fallen over the sector.

Vladimir Lisin later said that Russian Steel was indeed discussed by steelworks owners, but it never got beyond the consultation stage. A Russian Steel initiative group met once more, but not in 2000.