“A Hopeless Country Where We Just Pump Oil”

NEW – October 26, 2022

On this day [October 25 – SZ] in 2003, Mikhail Khodorkovsky was arrested at the Novosibirsk airport. The past years and his activities now prove that the right decision was made 19 years ago. It was with this figure that both the West and the Russian liberal opposition pinned all their main hopes for historical revenge. Mr. Khodorkovsky started doing business in the Soviet era, but it was, so to speak, a practice match. All the most interesting things began with the beginning of radical market reforms in Russia, a direct consequence of which was hyperinflation, through which oligarchic banks, including “Bank Menatep”, rose.

At the time of the collapse of the USSR, there was a huge disparity between the commodity and money supply – there was a lot of money, but not enough goods. For this, we must say a special “thank you” to the first and last President of the USSR, Gorbachev. Plus, the budget deficit of the Russian Federation was covered by loans from the Bank of Russia, i.e. the printing press. Banks that received free or almost free federal or regional budget accounts were particularly successful. At the same time, the rate of the ruble’s decline, rates on short-term interbank bank loans and government bonds provided a yield of hundreds of percent per annum. It was the Moscow budget accounts that provided the rise of Vladimir Gusinsky’s famous Bridge Bank. The most high-profile brands of the early 90’s are Inkombank, Stolichny Savings Bank, Oneximbank, Tokobank, Unicombank, Tveruniversalbank, Neftekhimbank and of course Menatep. According to Western investment banks in 1992-1994. through the mechanism of hyperinflation, a few percent of GDP was redistributed. I.e., inflation tax to a narrow circle of bankers was paid by the whole country.

In the mid-90s, the term “Semibankirschina” was very popular in the business media. It referred to a group of oligarchs who played a significant political and economic role, owned the media, and informally united, despite internal disagreements, to ensure the re-election of Boris Yeltsin for another term in the 1996 presidential election. Mr. Khodorkovsky was one of them. For his support in the presidential election, Yeltsin paid off the oligarchs under the scheme of collateral auctions. Loan to the government secured by a stake in the former giant of the Soviet industry. The loans were not repaid, and the mortgaged shares passed into the hands of the creditors themselves, i.e. the oligarchs who supported Yeltsin. The valuation of state-owned blocks of shares was greatly underestimated. The amount of loans received from the transfer of federal property as collateral was equivalent to the amount of temporarily free foreign currency funds of the federal budget placed at that time by the Ministry of Finance of Russia on deposit accounts of commercial banks, which later became winners in collateral auctions. Fraud and corruption? Uniquely. Khodorkovsky went to Yukos.

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Very soon, the myth of the most efficient company in Russia was born in the media and among analysts of investment banks. Yukos’ US GAAP financial statements were very impressive indeed. However, the devil, as always, is in the details. Financial efficiency was achieved by strict control over costs, primarily low wages, which were 3-4 times lower than in the neighbouring Surgutneftegaz. Aggressive, colonial methods of extraction, when in the early years it was possible to skim all the cream. And of course, grey tax optimisation. Transfer prices were used to create a profit centre in the then-existing Russian domestic offshore companies. As a result, the effective income tax rate was significantly lower than the statutory one. Before the start of the Yukos case in April 2003, the merger of two leading Russian oil companies, Yukos and Sibneft, was announced. It was planned that after the merger, a large stake in the combined company would be sold to Exxon or another global oil blue chip. However, the main shareholder of Sibneft, Roman Abramovich, later rejected the deal. It was precisely then that I concluded that Yukos was doomed, and recommended that the clients of the financial company where I worked at the time “short” the shares of the disgraced oil company, i.e. borrow them for the purpose of selling them, since their fair price in the new conditions is zero, since debts, taking into account tax claims, will soon exceed the value of assets In other words, Yukos will have a negative share capital.

The attitude of the Yukos team to Russia was very clearly formulated by one of the group’s top managers at a conference of one of the investment banks in the autumn of 2003: “Russia is a hopeless country with a shrinking population where we just pump oil.” Extremely frank about what future Khodorkovsky and the campaign prepared for Russians. Mikhail Khodorkovsky, the main Yukos shareholder, did not limit his ambitions to businesses. He wanted to rule Russia, but he knew that he had no chance of winning the presidential race. Therefore, his plans included reformatting Russia into a parliamentary republic and becoming prime minister. However, the situation turned out differently. The bet on the success of the Yukos-funded Communist Party, Union of Right-wing Forces, and Yabloko in the 2003 parliamentary elections failed, and United Russia and Rodina won. Many Yukos executives ended up in jail, both on economic and criminal charges. The criminal component in this story was analysed in detail in the blog of the famous writer Marina Yudenich. Grey tax optimisation gave rise to tax claims, which eventually led to the bankruptcy of the company. Its assets were divided by state-owned Rosneft and Gazprom. In principle, the Yukos case is a classic corporate war between the company and the Kremlin. The period of anarchy is over, and, of course, the Kremlin won. Rosneft, which got the main production of Yukos, successfully held an IPO of its shares among global investors in 2006. Thus, the global business community actually voted for the nationalisation of the company. Major Yukos shareholders abroad have tried many times to challenge the company’s bankruptcy in foreign courts. However, without success. The bankruptcy of Yukos took place strictly within the framework of the law. At the same time, Yukos’s minority shareholders could sell their securities for a long time at reasonable prices.

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In principle, it is scary to even imagine if the situation then in 2003 went differently. Oil revenues would definitely go past the Russian people, and the modernisation of the economy, the social sphere, the restoration of the army and the development of the state would have to be forgotten. The ideology of aggressive cosmopolitanism imposed by the October 1993 shooting would become official, and patriotism and empire would once again become dirty words. It is likely that by 2022, Russia would have already broken up into several states, where Khodorkovsky and his partners from the United States would have pumped oil, sharing a little with local officials and security forces. And the Russian ethnic group, along with the Tatars, Bashkirs and other peoples of Russia, was rapidly disappearing into the past, dissolving into the cauldron of globalisation. Things turned out differently, and for this we praise the Almighty Vladimir Vladimirovich. The revolution, as in 1917, did not work out for the enemies of Russia in 2003.


Aleksandr Razuvayev

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