The Russia Conundrum

In June 2006, the Kremlin appointed a bankruptcy receiver for the remaining Yukos divisions and a creditors’ meeting was called. At the meeting, a restructuring plan was presented by Yukos that would have allowed the company to settle its liabilities and continue operating in light of rising oil prices. The plan was rejected by the Kremlin, as the Russian authorities again demonstrated that they were not interested in settling with Yukos. In August 2006, a Russian court declared Yukos insolvent. The rejection of Yukos’s restructuring plan forced a fire sale of the company’s remaining assets, which included the production facilities Tomskneftegaz (including the Angarsk and Achinsk refineries) and Samaraneftegaz (with a further three refineries). The majority of the assets were acquired at well below market value by Rosneft. Rosneft then included its stake in YNG in its IPO for flotation on the London Stock Exchange. As the Financial Times pointed out, the state-controlled company’s expropriation of all of Yukos’s production units and refineries transformed Rosneft from Russia’s number-eight oil major, worth just $6 billion, into the country’s biggest producer, with a market capitalisation of $90 billion. Rosneft itself described the purchase of YNG as ‘the most monumental bargain in Russia’s modern history’.

Yukos investors received no benefit from any of the auctions, as Yukos’s liabilities were artificially calculated to match exactly the fire sale prices of its assets, leaving no balance to be distributed to the shareholders. American investors in particular lost nearly $7 billion. In November 2007, Yukos’s liquidation was complete and the company was removed from the Russian register of enterprises.

I was put on trial, together with my friend and business partner, Platon Lebedev, at the start of summer in 2004. There was a widespread acceptance in Russia and abroad that the charges against us were a legal farce, and that this was a politically motivated show trial. The Parliamentary Assembly of the Council of Europe, which oversees the European Court of Human Rights, had appointed a commission to investigate the legality of the case. Its chairman, the former German Justice Minister Sabine Leutheusser-Schnarrenberger, was outspoken in her assessment:

There are many circumstances which lead us to believe there must be a political motivation in this case. Khodorkovsky is the only oligarch who sits in prison since October last year. There are massive claims for back taxes directed against him. And this is not happening to any other large company in Russia. These are all circumstances where one can say there is politics involved, not the rule of law. There are significant accusations that human rights have been violated around the arrest and also in prison, especially concerning the medical treatment of some of the Yukos detainees. That a businessman manager is held in pre-trial detention for nine months although he is highly unlikely to flee abroad, that he is held like an animal in a cage during court hearings, all this is alarming.

The commission highlighted the wider threat to democracy posed by the Yukos case:

I am very concerned about the developments as far as the rule of law is concerned, democracy in general and the strengthening of civil society. In summary, I believe we are really faced with a very dangerous development here, a move away from democracy and the rule of law.

I believe we must tell Putin: If you are going to continue like this, with the cloak of justice but with political reasons in the background, then we won’t be able to continue business relations in this way.

Leutheusser-Schnarrenberger issued a formal report documenting Russia’s ‘gross infringements’ of the European Human Rights Convention and concluded that the Yukos executives had been ‘arbitrarily singled out … in order to weaken an outspoken political opponent, intimidate other wealthy individuals and regain control of economic assets’. I had been arrested because I was perceived to be a figurehead for the democratic, Western-friendly, internationalist future that many of us wanted for our country, while Putin and his ex-KGB colleagues were plotting a return to authoritarian rule.

Behind bars in the courtroom, surrounded by the press and media