The Economist says that the creation and seizure of Mikhail Khodorkovsky's "Yukos" oil firm represented the beginning and the end of freedom and democracy in Russia:
IT WAS the first “smart” office building in Russia, self-sufficient and stuffed with the latest technology, a showcase of Russian capitalism and built to serve as the headquarters of Yukos, the country's biggest oil company at the time. The pearl-tinged tower was insured against earthquakes, storms and floods. It was even insured against police raids—but, alas, not against political change. In April 2003, when the company moved in, someone counted the steps between landings: 13, an unlucky number. A few months later things started to go wrong.
This week Yukos's office building was the last of the company's main assets, after its production units, refineries and petrol stations, to be sold in a series of staged bankruptcy auctions. Most of Yukos has ended up with state-controlled Rosneft, now Russia's largest oil company, run from a low-rise office within shouting distance of the Kremlin. All that now remains of Yukos is a number of lawsuits filed by disgruntled shareholders demanding compensation from the Russian state. In a few weeks a clerk will cross out Yukos's name from an official register and Russia's first-ever private oil company will cease to exist as a legal entity. Rubbing out the stain that the destruction of Yukos has left on Russia's political and economic landscape, however, will take a lot longer.
At the very least, the Yukos affair changed the shape of the Russian oil industry, giving the state control over energy resources and doubling its share of crude output to more than 50%. But the legacy of Yukos's destruction goes beyond oil. If the emergence of Yukos epitomised Russia's transition from a planned economy to the wild capitalism of the 1990s, which for all its excesses thrived on private initiative, its destruction was a turning-point towards an authoritarian, corporatist state.
What triggered the attack on Yukos and its main shareholder, Mikhail Khodorkovsky, is still a matter of argument. Was it Mr Khodorkovsky's political ambitions, or his plans to sell a large chunk of the company to Exxon Mobil? Was it his intention to build private pipelines, or the cupidity of the new elite? It was probably all of the above. But what has become clear over the past four years is that Yukos's fate was sealed once Vladimir Putin became Russia's president in 2000.
“If the Yukos case had not happened, it would have to have been invented,” says Rory MacFarquhar, an executive director at Goldman Sachs in Moscow. The case partly reversed the legacy of the 1990s during which, through a series of mostly rigged auctions, control of natural resources passed from the discredited Communist party to a group of oligarchs supportive of Boris Yeltsin's regime. It was unusual by any country's standards. Mr Khodorkovsky, a businessman and former Young Communist League activist, was one of the prime beneficiaries. His bank arranged the auction of Yukos and ended up as the sole bidder. Any potential rivals had been warned to stay clear and he got the majority of Yukos for a song.
The privatisations successfully dislodged the Communists from the commanding heights of the economy, but also created a lasting sense of injustice in Russia. So when Mr Khodorkovsky began to behave like an independent and legitimate owner of Yukos, negotiating its sale and financing the political opposition, Mr Putin was furious.
The president's desire to curtail the political and economic influence of the oligarchs was understandable. Mr Putin could have levied a windfall tax on the oligarchs, or renationalised the energy companies and compensated shareholders. Instead, he used the legal and tax systems to bankrupt a healthy company and pass the prize from one elite to another—this time, a group closely tied to the KGB, the Soviet Union's former security service.
Russian tsars often banished disloyal aristocrats who prospered under a previous reign and expropriated their wealth. What was new with Yukos was Mr Putin's pretence that all this was legal. That eroded democratic institutions and further discredited the law by using it as a political instrument. An attack late last year on Royal Dutch Shell (allegedly on environmental grounds) and an earlier economic blockade of Georgia, which was attributed to health regulations, were part of a pattern that began with Yukos.
After a bogus trial conducted by servile judges, Mr Khodorkovsky was sent to a Siberian prison camp and Yukos was broken up and pushed into bankruptcy through ever mounting back-tax claims. The figures did not add up. In December 2004 Yuganskneftegaz, the main production unit of Yukos, was sold in a rigged auction for $9.4 billion to a front company registered in a grocery shop in a provincial town, which was then bought by Rosneft. (When Rosneft came to float its shares on the London Stock Exchange, the same asset was valued at close to $60 billion.) The sums kept changing, but the formula stayed the same: the tax bill always ended up exceeding the value of Yukos's assets.
By the time Yukos's last assets were auctioned (undervalued by about 25%, says Al Breach of UBS, a Swiss bank) there was a sense of inevitability rather than outrage. Russian and foreign energy companies such as TNK-BP and Italy's Eni and Enel took part to ingratiate themselves with Rosneft and Gazprom, the gatekeepers of Russian resources. Big foreign banks bent over backwards to earn the Kremlin's favour. The government “left enough crumbs on the table” to keep foreign businesses happy, says Mr MacFarquhar.
High oil prices kept everyone quiet. They also meant that Russia felt no immediate pain from the destruction of Yukos. The management of state oil companies may be less efficient and less transparent than that of private firms, but when prices are high they still make a lot of money. Shareholders have filed lawsuits in international courts, claiming that Russia has violated the European energy charter to which it had signed up. Russia retorts that it never ratified the document.Yevgeny Yasin, Russia's former liberal economics minister, argues that the Yukos affair has done enduring damage to Russia's long-term prosperity because it is harder to create wealth without property rights and the supremacy of law. The affair broke the rule of the oligarchs but resulted in a fusion of political and economic power, concentrated in the hands of the Kremlin. Its chiefs must think they are invulnerable. But so did the oligarchs and the Communists before them