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#6 - JRL 7247
RFE/RL Newsline
July 14, 2003
By Daniel Kimmage

If the world's suit-wearing, bottom-line-watching, boardroom-dwelling optimists could condense all their hopes and dreams for Russia into a single word, that word would almost certainly be Yukos. From its early adoption of international accounting standards to its introduction of independent board members to its glossy annual reports holding forth in unaccented English on corporate governance and environmental awareness, Russia's premier privately-owned oil company has forged an image as the standard-bearer of Western ways in the once Wild East. It doesn't hurt that it rakes in scads of swag to boot, of course. Enough, in fact, to make Chairman and top shareholder Mikhail Khodorkovskii Russia's richest man, and a respectable No. 26 on the "Forbes" 2003 list of the world's wealthiest people, with a personal fortune estimated at a cool $8 billion.

And Yukos has been on a roll this year, gearing up for a merger with fellow Russian oil major Sibneft that will make YukosSibneft the fourth-largest oil producer in the world, and second only to ExxonMobil in oil and gas reserves. With Khodorkovskii at the helm, YukosSibneft will be the first Russian company to join the global elite of multibillion-dollar megacorporations.

But Yukos hit an unexpected, man-made bump in the road recently. On 2 July, representatives of the prosecutor's office roused billionaire Platon Lebedev (No. 427 on the "Forbes" "World's Richest People" list with $1 billion) from a hospital bed, hauling him in to face fraud charges concerning a 1994 fertilizer-plant privatization. A longtime associate of Khodorkovskii, Lebedev is the chairman of the holding company that controls 61 percent of Yukos. Other cases, some of them predating the Lebedev arrest, involved more obscure figures. Aleksei Pichugin, head of a security department at Yukos, was arrested on 21 June on charges of organizing a double murder in 2002. Ramil Burganov, a former Yukos executive, has been sought since January 2002 for embezzlement. Finally, prosecutors announced on 3 July that they are investigating a Yukos connection in two attempts on the life of oilman Yevgenii Rybin in 1998 and 1999, "Vremya novostei" reported the next day.

The charges against Lebedev go back to the distant days and dark dealings of 1994, when Lebedev headed Khodorkovskii's Menatep Bank and Russia's future billionaires were busy privatizing the onetime fiefdom of the Communist Party. According to summaries published in "The Moscow Times" on 4 July and "Kommersant-Daily" on 7 July, a firm called Volna -- allegedly linked to Lebedev -- bought a 20 percent stake in fertilizer producer Apatit in 1994. Volna paid $225,000 and pledged to invest $280 million. In 1996, the regional government successfully sued Volna for reneging on its investment promise. The firm did not return the shares, however, claiming a third party had already bought them. The dispute finally ended in a 2002 voluntary settlement that saw Volna shell out $16 million to make amends. The new charges ignore the previous settlement and up the ante, claiming damages to the state of $283 million.

The flurry of legal activity set off a firestorm of speculation over the causes and timing of the campaign, seen everywhere as directed primarily against Yukos CEO Khodorkovskii. Khodorkovskii's numerous fans in the West found themselves in a bit of a bind, their desire to defend the forward-thinking oilman brought face to face with their distaste for the milieu in which he made his first millions. A 4 July editorial in the "Financial Times" nicely captured the ambivalence, moving from the merely ambiguous -- "Beneath the calm created under President Vladimir Putin lie risks that those who deal with Russia ignore at their peril" -- to close with the positively Delphic -- "History teaches that most very wealthy families clean their fortunes, as the robber-baron dynasties did in the [United States]. But the process takes years and cannot be rushed."

Russian observers generally focused on the increasingly popular topic of warring factions in the Kremlin. Khodorkovskii himself suggested as much in a 5 July interview with Tomsk's TV-2 television station: "We're dealing with a power struggle between various wings of Vladimir Putin's entourage." Though Khodorkovskii, fresh from a trip to the prosecutor's office the previous day to answer questions about the Lebedev case, maintained a tactful silence on specifics, others were quick to fill in the blanks. The Kremlin struggle is widely seen as pitting the Yeltsin-era oligarchs and their political allies against the "St. Petersburg secret policemen"(not all of whom hail from Petersburg or the secret police) who rode into Moscow on President Putin's coattails. The oligarchs, of whom Khodorkovskii is a prime example, have more money and moxie; the policemen have better access to the repressive mechanisms of the state.

Aleksandr Privalov presented a thumbnail sketch of how Yukos fits into the conflict between the "old Kremlin" and "new Kremlin" wings of the presidential administration in "Ekspert," No. 25. In going after Yukos, Privalov explained, the "new Kremlin" wing does not want money "from Yukos or from those who are supposed to draw conclusions about their own behavior from Khodorkovskii's misfortunes. They have money. They want Yukos and its ilk to stop financing the other side. They want to pull the plug on the opposing wing of the presidential administration. And they chose Yukos as their whipping boy because it's the richest and most ambitious."

In his Tomsk TV-2 interview, Khodorkovskii consistently downplayed his company's political influence, claiming that "in Russia, economic structures have never had the political power and influence that such structures have had, for example, in the United States." When asked whether Yukos's growing economic muscle had set alarm bells ringing, Russia's richest man was dismissive: "I think that it's not the economic power as such. It's just one of the factors in tomorrow's, or today's struggle for tomorrow's power. In this struggle, we're not one of the subjects, but one of the objects: chair, table, Yukos."

The larger problem, of course, is that while we may have a clear picture of the objects -- be they chairs, tables, or multibillion-dollar oil companies -- we must often make do with foggy guesses about the subjects. The gist of the Yukos affair, which could easily fade away like so many scandals before it, is precisely this problem of visible objects and invisible subjects.

Much of the optimism about Yukos arises from how much people know about the company. Last week's outburst of prosecutorial zeal comes as a reminder that a great deal remains unknown -- about the not-so-distant past of Russia's business elite and about the forces that may greatly influence that elite's not-so-far-off future.

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