IT WAS the most controversial deal of the 1990s. In 1995 a group of oligarchs agreed to lend about $200 million to President Yeltsin’s flagging election campaign against the Communist Party, in return for control of assets worth, at today’s market prices, about $70 billion (£40 billion).

The main companies that took part in this “loans-for-shares” scheme were the oil companies Yukos and Sibneft, and the largest nickel company in the world, Norilsk Nickel.

Under President Putin, the Russian Government has steadily taken back those assets. At the end of 2004, the owner of Yukos, Mikhail Khodorkovsky, was charged with tax evasion, and the assets of his company sold to Rosneft, the state-controlled oil company. Last August Roman Abramovich sold Sibneft to state-controlled Gazprom. That leaves Norilsk Nickel, owned by Vladimir Potanin and Mikhail Prokhorov, the fourth and fifth-richest men in Russia respectively.

Many senior bankers in Moscow believe that the Kremlin will buy back Norilsk Nickel in the next two years. Sources say one method being considered is to take over the company via a leveraged buyout, using Alrosa, the state diamond monopoly. The head of investment banking at one Moscow bank says: “Very senior levels at Alrosa are considering the acquisition.” Both Norilsk and Alrosa deny they are considering a deal. Charles Ryan, chief executive of Deutsche Bank UFG, says: “Potanin might well think it’s time to invest his money elsewhere. But whatever he does, it will be his own choice. I don’t think the Kremlin will force him.” Ryan notes that Norilsk is being split into two companies, the nickel company and a separate gold company called Polyus, which has assets abroad. He suggests that Potanin could choose to concentrate on the latter concern.

If Potanin is looking to sell Norilsk Nickel, his options are limited. He is unlikely to be able to sell Norilsk to a foreign company, as its enormous resources of nickel, the exact size of which are a state secret, are considered an asset of strategic importance for the state. A takeover by Alrosa would also not be easy, however. A spokesman for Alrosa points out that the company is smaller than Norilsk and would be hard pressed to find the cash to buy it, if it paid market price.

In addition, Alrosa, the second-biggest diamond company in the world, is itself at the centre of a struggle for power between the Russian Government and the regional government in the Republic of Yakutia in Siberia, where Alrosa is based. The two governments each have large stakes in the company, but the federal government now wants to get a controlling stake in it. The Alrosa spokesman says: “Before, the federal government’s rights as the main shareholder were abused, and now it wants to bring its property back under its control.”

The regional government of Yakutia is agreeing, but reluctantly. The company has been a great cash cow for the region, and provides about two thirds of its budget. A local political movement, with the unlikely name of the Popular Front of Alrosa-Yakutia, has been protesting against the federal government’s attempt to gain control.

However, the Kremlin, as usual, looks set to win the battle. Once it does, it would be free either to use Alrosa as a vehicle to take back Norilsk Nickel, or to sell a minority stake of Alrosa to foreign investors. Either way, Western bankers are rubbing their hands at the thought of further deals to come from the Kremlin’s rising power.

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