Khodorkovsky - historic case notes
From: "Andrei Liakhov" <andrei.liakhov
@integrites.com>
Subject: Khodorkovsky - historic case notes
Date: Thu, 30 Dec 2010
I came across MBK as he is currently widely known in the West several times from the late 80s to the late 90s. It strikes me odd to see this Komsomol bred apparatchik, whose bank was co-owned by the General Department of the Secretariat of the CPSU Central Committee at least on paper until 1994 (when I saw the share register of Menatep) and whose bank was close to collapse by 1997 suddenly acquired a reputation of the most successful businessman and a model democrat in the West.
Image adapted from original copyright (c) 2010. RFE/RL, Inc. Reprinted with the permission of Radio Free Europe/Radio Liberty, 1201 Connecticut Ave., N.W. Washington DC 20036 www.rferl.org
The transformation of MBK's image happened almost overnight sometime between October 2003 and February 2004 and came as a surprise to the majority of the professional Russia watchers and banking community. Until this time MBK's image was very far from that of a leading Russian businessman and a prominent public figure. That negative image started to reflect on his business - potential industry investors pulled out of their negotiations with Yukos shortly before his arrest, Yukos was made to drop its international IPO plans (shortly after Lukoil set the benchmark in 2002) and put on ice its international expansion plans.
It seems also strange that Yukos itself is currently being portrayed as a successful company under MBK's management. MBK was almost literally given Yukos (in the ill famous 1997 loans for shares scheme) for free (a reminder - Russian CBR lent money to Menatep, which used the proceeds to buy shares in Yukos). Between 1997 and 2003 Yukos (in comparison to other major Russian oil companies) Yukos has chosen a profit driven growth model, which resulted in a very limited expansion into regions other than its principal historic production base. Between 1997 and 2003 it acquired only 5 new subsidiaries in Russia, in comparison with Lukoil's 33. While Lukoil (which remained its principal competitor in that period) heavily invested into switching its profit center from margins on trading in crude to added value in oil products and downstream distribution Yukos used every trick in the book to boost production from its existing wells. It would suffice to say here that Yukos bought only one downstream asset outside of Russia (Mazheikiai Refinery), while Lukoil bought 3 (Petrotel, Odessa and Burgas). Thus Yukos was developed as a cash generating center which financed other MBK's businesses and projects. As such it was doomed to follow Atlantic Richfield's path (which was dissolved shortly after its Aliaskian deposits were recognized as fully depleted), rather than BP's or Shell's. The Yukos business model is typical of Komsomol businessmen - to find a cash cow to finance one's fantasies and startup projects. This strategy also caused concerns of the Ministry of Natural Resources early on - the first investigations (and resultant fines) of compliance with terms of Yukos production licences date back to 1998.
It is not my task to give a detailed critique of MBK owned Yukos. I only mentioned this as (i) it was widely covered in the press at the time; and (ii) the real Yukos performance was not what is now widely potrayed in the West.
One of the questions which I have never seen even asked by numerous commentators is "why MBK was given Yukos?". The answer to this question is very simple - MBK was managing money entrusted to him by CPSU without any obvious success and needed a cash cow to cover the losses accrued in Menatep by mid 1997.
When VVP became President and realized that the treasury was empty he turned to the "elders" who were looking after the CPSU money given to "trusted persons" for management. His task seemed to be to get that money back into the state coffers. It is obvious from the publicly available sequence of events (and sometimes excessively emotional exchanges between VVP and MBK) which lead to MBK's arrest that he refused to return the money. A very vain and ambitious Bogdanchikov saw an opportunity and persuaded Sechin to support him in the Yukos destruction exercise. The rest, as they say, is history.....
Thus it would seem that the MBK "myth" is being distorted at least in two major respects - (i) his relationship with the establishment (which on close scrutiny was that of an insider, rather than an independent player; (ii) his business management model was a variation of the old Soviet system of developing facade at the expense of the real business.
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