YUKOS as the most progressive corporation in Russia

YUKOS as the most progressive corporation in Russia
Sun Nov 16 19:08:37 2003

YUKOS as the most progressive corporation in Russia
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Anatomy of a Power Struggle
Putin vs. the oligarchs.

By Ilan Berman

n Russia, where strong-arm deals and extortion remain commonplace, business has always been cutthroat. Even so, the scandal swirling around Yukos, Russia's fourth-largest oil company, stands out. The very public clash between the energy giant and the Kremlin now making headlines speaks volumes about the country's turbulent power politics. It also provides an important glimpse into the struggle for influence taking place between the government and Russia's powerful business tycoons.

The affair was kicked off on July 2, when officials from the Russian prosecutor general's office unceremoniously arrested Platon Lebedev, chairman of Yukos's majority stakeholder, the Menatep Group. The charges levied against Lebedev stretched back to 1994, and his alleged illegal privatization of 20 percent of the state-owned Apatit fertilizer company. As part of the sweep, Russian authorities also picked up Alexei Pichugin, head of one of Yukos's security structures, for allegedly organizing two murders back in 1998.

Those arrests, in turn, opened the floodgates for a full-blown governmental assault. Russian prosecutors raided Yukos' corporate offices in Moscow, and even interrogated Mikhail Khodorkovsky, the company's powerful CEO and chairman. Russian officials also opened four new investigations into the oil giant, all of them involving murders or attempted murders from 1998, and brought new charges — this time on tax-evasion grounds — against Lebedev.

For Yukos, widely regarded as Russia's most progressive, transparent, and Western-oriented corporation, the results have been nothing short of disastrous. Caught in the Kremlin's crosshairs, its shares have declined sharply, and the company's value has dropped by more than $6 billion to date. And given its role as the cornerstone of Moscow's global energy standing, Yukos's fading fortunes have in turn had a destabilizing impact on the Russian stock market as a whole.

The reasons for the clampdown appear to have everything to do with politics. Recently, rumors have abounded that Khodorkovsky has been funding Russia's two main liberal parties, the "Union of Right-Wing Forces" (SPS) and "Yabloko." With both parties occasional opponents of Kremlin policy, and with both poised to challenge the pro-Kremlin "United Russia" in this December's looming Duma elections, this philanthropy has fueled speculation of a Yukos bid to gain influence in Russia's lower house of parliament.

Meanwhile, mounting big-business fears about the country's delicate economic equilibrium have fostered rumors of a "creeping oligarchic coup" to create a new, tamer governmental cabinet. And Khodorkovsky, Russia's richest man, has been floated as a potential candidate for prime minister if such an effort materializes. The Yukos chief has also helped fuel speculation that he harbors political ambitions, recently announcing his intention to step down as company CEO in 2007, one year before the pivotal presidential election of 2008.

In doing so, he and Yukos have broken an unwritten taboo. During the Yeltsin era, corrupt privatization efforts empowered a powerful class of business tycoons, giving them the wherewithal to become major political players. But for years, these oligarchs managed to coexist with the Kremlin, based on the tacit understanding that they stay out of politics. Those that did not, like controversial media moguls Boris Berezovsky and Vladimir Gusinsky, quickly found themselves the targets of a governmental clampdown. Now, Khodorkovsky's emergence as a major — if undeclared — political candidate has redrawn these battle lines, and the Kremlin is once again on the offensive.

For now, the Russian government appears content with simply taming Yukos and its influential chairman. The current crisis could therefore fade into memory after Russians head to the polls in December, or after next spring's national presidential election. But as the scandal simmers, Russian President Vladimir Putin is no doubt keeping an eye on domestic public opinion, which appears to strongly support a larger clampdown on the country's oligarchs, and even a wholesale rethink of privatization.

Such a reexamination of the corrupt economic status quo may in fact be long overdue. But at the hands of the Kremlin, this effort is likely to have little to do with righting past economic wrongs, and everything to do with eliminating political adversaries. The Yukos affair might thus mark the opening salvo in a broader attempt by the government in Moscow to redraw the country's political map — one that could decisively alter Russian politics.

— Ilan Berman is vice president for policy at the American Foreign Policy Council in Washington, D.C.

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