A jovial President Vladimir Putin wowed a standing room only crowd at the World Economic Forum this week, fielding questions from every direction and clearly pleasing the more than 350 business leaders in attendance.

And why not? The coy confidence with which the former KGB colonel defended his economic record most say is well-deserved. His litany of achievements (tax reform, land reform, ruble stability, reasonable inflation, etc.) have helped produce unprecedented annual economic growth of nearly 7 percent over the last two years.

Yet all is not well and much needs to be done if, as Putin put it at the forum, the average Russian will "be happy" by 2010. Indeed, 10 years after the collapse of the Soviet Union and just over three years since the devastating financial meltdown of August 1998, history seems to be repeating itself.

During the Boris Yeltsin era of "bandit capitalism," as many have called it, much of the nation's wealth ended up in the hands of a small coterie of Kremlin-connected intriguers who came to be known as oligarchs. Some of those oligarchs, like MOST-Bank and NTV founder Vladimir Gusinsky, have been forced into exile. But others, like Uneximbank founder Vladimir Potanin, Alfa Bank founder Mikhail Fridman and Roman Abramovich, Boris Berezovsky's protЋgЋ, not only emerged from the 1998 crisis relatively unscathed, but have actually multiplied their wealth and expanded into a wide variety of sectors.

As in the pre-crisis years, a huge sliceof the nation's GDP is controlled by a handful of powerful industrialists that have at times appeared to violate if not the letter than certainly the spirit of the law. And like the pre-crisis years, the true extent of these industrialists' empires is literally impossible to calculate.

But under Putin, overt political activity has transformed into aggressive lobbying; corporate governance has become a topic of discussion and action; and the idea of taking enormous profits and investing them domestically instead of exporting them abroad looks appealing.

Call it the new face of Russian oligopoly.

The Holding Companies

Over the last couple of years, a handful of companies, like Alfa Group, Interros and what is now called Millhouse, have turned themselves into monster conglomerates by snapping up chunks of major enterprises in non-core sectors with the profits from their core business -- exploiting natural resources.

They still pump oil, dig up metals and bank, but now they also insure, produce turbines, build telecommunications systems, trade grain and even raise pigs. They each contribute a significant share of the nation's GDP and belong to a group of insanely wealthy individuals.

But the reason behind this shopping spree may not simply be, as some believe, greed or lust for power, but the absence of a proper banking system -- and orders from the Kremlin to invest here.

"The question is what the oligarchs are doing with their money. They could take it out of the country as they used to, but Putin has told them they would be in trouble if they do," said Al Breach, economist with Goldman Sachs.

With, apparently, a directive from above and an unwillingness to entrust cash to anyone but themselves, Alfa Group, Interros and Millhouse are gorging on new assets.

"Both in economic terms and in political terms it makes sense to invest. The question is what to invest in," Breach said.

Millhouse Capital

Technically Millhouse is only a few months old, but it is purely a child of the Yeltsin era. Last week Sibneft, Russia's No. 6 oil producer, announced that its core shareholders had shifted control of a huge amount of their assets, including 88 percent of Sibneft, to a newly registered British company called Millhouse Capital.

The news was big because it helped clarify one of the most enduring mysteries in Russian business: What exactly does Roman Abramovich, Sibneft's "core shareholder," actually own?

Overnight, Millhouse came to control not only Sibneft, which expects profits of more than $1.2 billion this year, but 50 percent of Russian Aluminum, the world's second largest aluminum company and a multibillion dollar conglomerate in itself.

The holding also includes a 26 percent stake in Russia's flagship airline, Aeroflot, electric power stations, and enterprises in the automobile, truck, bus, pulp and paper processing, insurance and banking sectors.

The lack of transparency surrounding the mysterious Abramovich and the fact that many of the new conglomerate's divisions are not public companies make it difficult to put a price tag on the new business heavyweight.

However, according to James Fenkner, Troika Dialog equity strategist, Millhouse is probably worth $5 billion and contributes about 3 percent to 4 percent of Russia's GDP.

Just like the other major holdings that survived the crisis, Millhouse was built with cash from exporting oil and metals.

Before 1998, large-scale holdings were predominately created around banks, the majority of which collapsed as a result of the ruble devaluation and debt default that August.

Sibneft itself was created in 1995-96 with help from well-connected ex-oligarch Alexander Smolensky's now-defunct SBS-Agro bank and companies affiliated with it.

There, at its birth, was also currently exiled media tycoon Boris Berezovsky. The latter's relationship with the company remains a mystery, because Sibneft denies that Berezovsky owns any stake in the company, but the former Kremlin insider has periodically said that he owns up to half of it.

In 1995, however, Berezovsky's presence was undeniable. Around that time a series of firms connected to the powerful entrepreneur snapped up Sibneft for next to nothing in a chain of loans-for-shares auctions.

Sibneft was carved out of state-run oil giant Rosneft and originally created to be the financial tap for Berezovsky-controlled ORT, a nationwide television channel.

The loans-for-shares scheme itself, under which investors lent the government money in return for the right to manage state-owned stakes in partly privatized companies, was widely criticized, as stakes often went to the very companies organizing the loan tenders for the government.

Abramovich's involvement with Sibneft stretches back at least until 1996, when Runicom, a Swiss company whose Moscow office Abramovich headed, bought a 12.2 percent stake in Sibneft at a cash auction. Subsequently, Abramovich became head of Sibneft's Moscow office. The 35-year-old businessman once said that he controls a 44 percent stake in Sibneft, but some reports suggest a figure twice as high.

In the years to follow the company became one of the leaders in the industry, cleaning up its image and paying out a record dividend. But it horrified the investment community last month when it announced, with few details, that it had secretly sold, just before announcing a huge dividend, a 27 percent stake in the company back to the same "core shareholders" it bought the stake from last December.

Sibneft has also been pursuing acquisitions in areas totally unrelated to its core businesses, such as Omsky Bekon, the top meat processor in the country.

Last year Sibneft's shareholders snapped up about a third of the Russian aluminum industry and then merged on a 50-50 basis with Oleg Deripaska's Siberian Aluminum Group to form Russian Aluminum, or RusAl, which now controls 75 percent of the country's aluminum production. About 80 percent of RusAl's output is exported and it has a turnover of over $4 billion a year.

Despite the questionable synergy of such a wide array of companies, analysts say that such diversity is a natural stage in Russia's economic development.

"Different groups have different investment strategies. Such groups used to exist all over the world. This is just no longer a fashion in the West. You concentrate on one thing you know well," Breach said.

"Russia is not ready to adopt this model yet," he added.

The rules of the game are rather similar to all holdings, or in fact the entire Russian economy -- lending to outside corporate groups is minimal, while Russia's investment requirements are extremely high.

As a result a company capable of providing sustainable cash inflows from its mineral export arm to other group members in need of investment creates a big holding.

"Behind the creation of conglomerates such as Millhouse more than anything is the weakness of Russian banking system, Fenkner said. There is no proper way to invest and diversify."

Interros

In contrast to newcomer Millhouse, which seems to be taking a kid-in-the-candy-store approach and snapping up everything it finds appealing, Vladimir Potanin's Interros group is nurturing the gem of its empire and cautiously liquidating its oil and gas assets and branching into machine-building and agriculture for what appears to be the long haul.

That gem is Norilsk Nickel, which in addition to having a fifth of the global nickel market controls two-thirds of the world's palladium and one-fifth of its platinum.

Interros evolved in 1992 with the creation of the International Finance Company, or MFK bank. The next year, Uneximbank was created and, with the help of Potanin's political clout, became one of the most powerful financial institutions in the country. One of the few chosen government agent banks, Unexim handled some of the most lucrative state accounts, including customs accounts, until the 1998 crisis.

The most auspicious periods in the group's history happened to coincide with Potanin's tenure as deputy prime minister from the fall of 1996 to spring of 1997.

In 1995, Potanin began the acquisition of Norilsk Nickel, first receiving a 38 percent stake as collateral for a loan in the controversial loans-for-shares scheme and then buying it out in 1997.

Earlier that year, Potanin got hold of a controlling stake in the Sidanco oil company and later, together with George Soros, bought a 25 percent stake in national telephone monopoly Svyazinvest in a deal that gave new meaning to the word controversial. Accusations of insider dealing for the Svyazinvest stake were splashed across the papers for months and Soros later called it the worst investment he had ever made.

After the crisis, Interros, which some now estimate to be worth upward of $4 billion, underwent a major transformation. Rosbank came to replace Unexim as the group's pocket bank and absorbed the former behemoth earlier this year after the restructuring of its debt. Sidanco was taken over by Alfa Group's Tyumen Oil Co. after a battle that raged for years. And Interros announced its intention to sell its interest in the multibillion-dollar Kovykta gas project.

Interros also lost interest in Svyazinvest, which Potanin once called a "tasty morsel," and has sold part of its stake to Soros. Thus, Norilsk Nickel remains Interros' main asset, and is arguably worth more than all the failed projects combined -- it accounts for the lion's share of the roughly 3 percent of Russia's GDP that Potanin controls.

Norilsk Nickel, which had been suffering from glaring mismanagement before Potanin took over, became a dream asset. While many are still bitter at Potanin's good fortune in the privatization game, few would argue that his team quickly turned the plant around. The swift streamlining of the management coincided with the ruble devaluation, and the previously loss-making Arctic Circle giant began turning a profit for the first time in 1998.

Although Norilsk is expanding and has projects as far afield as Australia, basing your empire on raw materials is always risky, so Potanin is making a foray into machine building.

"You have to have something in hi-tech, which uses intellectual added-value," he has said. Interros' high-tech holdings currently include jet-engine builder Perm Motors and Siloviye Mashiny, a consortium uniting several plants whose main product is turbines.

Balancing high-tech with low-tech, Interros last month set up an agricultural company, Agros, with a charter capital of $100 million and a working capital of $200 million, and bought a stake in major agricultural company Roskhleboprodukt with some of the $1 billion it earned selling Sidanco to Alfa and British Petroleum. Through Agros, Interros hopes to control 7 percent of the world grain market and join the world's top five grain producers down the road.

Despite spinning off some units, Interros remains diversified, retaining a few pieces of its old empire, including several mass media names, including national daily Izvestia, which was Potanin's main weapon in the 1997-98 propaganda battle over Svyazinvest, and Komsomolskaya Pravda. There is also the influential news agency Prime-TASS and the high-brow Expert business magazine. The group also owns a 34 percent stake in the Novolipetsk steel mill, as well as insurance and asset-management companies, and plans to create a banking holding with Rosbank and MFK as its core.

Potanin's strategy now looks more like that of Alfa Group, with which he tried and failed to create a union in the mid 1990s, than Millhouse's.

"Interros is completing the asset restructuring process which was started in 1998, and one of the obvious signs of this process is spinning off or selling off non-core assets," Potanin has said.

The Interros transformation may be an indication that the division of assets between rival groups, which has sent shockwaves through the country for years, is subsiding, at least in some sectors.

Alfa Group

Mikhail Fridman's Alfa Group is the slickest and nimblest of the three major financial industrial groups and it may be the mightiest.

The brokerage Renaissance Capital puts the value of Alfa near $8 billion and its increasing financial and political power is hard to overestimate.

Andrei Ryabov, a political analyst at the Moscow Carnegie Center, said that since the crisis, Alfa has managed to build one of the most powerful and effective political lobbies in the country. The appointment last year of Vladislav Surkov, an active Alfa lobbyist, as the deputy head of the presidential administration paved the way for other Alfa agents to follow in different branches of power, he said.

Unlike Potanin and Abramovich, Fridman was considered a Kremlin outsider and before the crisis was often derided by other oligarchs for not having connections with the nomenklatura.

In the 1980s Fridman tried virtually every kind of business there was at the time. He started a courier service, an apartment rental agency, he sold Siberian wool shawls, imported Western cigarettes, perfume, computers, Xerox machines and he even bred white mice for laboratories before he hit paydirt with the creation in 1988 of the small commodities-trading firm Alfa Eko, which in a few years turned into the powerful financial-industrial consortium Alfa Group.

In 1991 Fridman founded OAO Alfa Bank, the heart of the group, and soon afterward recruited Pyotr Aven, former minister of foreign economic relations in Yegor Gaidar's first Cabinet, to raise Alfa's political profile.

Their first big-league battle ended in defeat, when they lost the battle for Sibneft to Berezovsky and his associates.

Alfa didn't win as many prized assets as other groups, a fact that compelled it to make the most of what it got and to build other businesses from scratch.

"Alfa, earlier than anyone else, comprehended the problems of Russian legislation," and acquired assets through the bankruptcy process, said Renaissance Capital economist Alexei Moiseyev.

A well-calculated financial policy, caution and thrift helped Alfa to increase its influence step by step.

Alfa Bank has always been the backbone of the group -- while other conglomerates spent most of their efforts acquiring production assets, Fridman and Aven focused on banking.

As a result, former rivals like MOST-Bank, SBS-Agro, Menatep, Inkombank, Uneximbank, Mosbiznesbank and Rossysky Kredit now stand as empty shells, but Alfa Bank not only emerged from the 1998 crash, it also bolstered its reputation by honoring commitments to creditors and depositors.

"The bank was a core business for Alfa, so they joined forces, with significant support from the government, to save the bank," said Mikhail Matovnikov, deputy head of Interfax Rating Agency.

Alfa Bank is now a leading private bank with a nationwide network and a credit portfolio of $1.3 billion and assets of $2 billion.

Its biggest asset is Tyumen Oil Co., or TNK, the No. 2 oil company in the country by reserves and No. 4 in production. Alfa got control of TNK in 1997, when the Kremlin, after Alfa helped Yeltsin's re-election campaign the previous year, sold a 40 percent stake for $810 million. Alfa, which now has a 50-50 partnership in the company with an affiliated firm, Access-Renova, watched TNK's revenues grow from $2.3 billion in 1997 to $4 billion in 2000.

Last year an 85 percent stake in the coveted Onako oil firm was sold for $1.08 billion to a little-known firm owned by TNK.

Meanwhile, Fridman nurtured Alfa Eko into one of the largest exporters of oil and importers of sugar and tea in the country and a major metals player through companies like Achinsky Alumina Plant, Zlatoustovsky Metallurgical Plant and Taganrog Pipe Plant. It also controls 8 percent of all wine imports and, after last year's scandalous deal with the Trading House of Descendants of Pyotr Smirnov, expects to soon become one of the largest vodka producers in the country.

Alfa owns Perekryostok, Moscow's top supermarket chain with expected turnover this year of $220 million from its 33 stores. The group also operates a real estate arm, Alfa Estate, and Alfa Cement, which has 25 percent of Russia's cement market.

And the group shows no signs of slowing down.

Alfa, which already has representative offices in New York and London, this week announced the creation of a subsidiary in the Netherlands to facilitate trading operations between Russia and EU countries. And last week it officially launched Alfa Insurance, which includes the East European Insurance Agency, Alfa Garantiya and Ostra Kiev.

In April, Alfa stepped into the telecoms business, buying a 43.8 percent stake in Russia's leading Internet company, Golden Telecom, for $110 million. A month later, it paid $247 million for a chunk of No. 2 mobile operator Vimpelcom and Vimpelcom-R, its regional arm.

This summer, Crown Resources USA, a newly established subsidiary of the Alfa Group's Swiss subsidiary, Trading Resources, announced it would focus on aluminum trading. Until recently, Crown Resources traded in oil and petroleum products.

"The Alfa approach is bringing in a foreign strategic investor in the hope of selling the company on. Alfa gives the political contacts and capital to some extent. You sort the company out with the help of the foreigners who bring in the expertise and the goal is to sell the company on" said Goldman Sachs' Breach.

"We are neither bankers, nor oil men, nor telecommunicationsists -- we are investors," Fridman said. "We invest in projects and withdraw from them if we believe it is the right time, place and price. We are sure that one day we will withdraw from oil and banking assets and will possibly be investing in other assets," said Fridman.

No one doubts the size of Alfa's operation. But, like Interros and Millhouse, no one really knows exactly how much they own, either.

"It is hard to say who controls what and how," said Alexander Astapovich, deputy head of the Bureau of Economic Analysis. "The lack of transparency is the same in all big holdings."

The lack of transparency and the lack of a functioning banking system, analysts say, are causes for worry, as giant financial industrial groups like Interros, Millhouse and Alfa look poised to grab more of their already sizeable share of the national economic pie.

"These companies -- Interros, Millhouse, Alfa, etc. -- are going to be the center of the Russian economy's growth for the major part of the following decade," said Renaissance Capital's Moiseyev.

Unless, that is, history repeats itself.