The New Tsar by Steven Lee Myers

Author:Steven Lee Myers
Language: eng
Format: mobi, azw3, epub
Publisher: Knopf Doubleday Publishing Group
Published: 2015-09-28T22:00:00+00:00

CHAPTER 16

Kremlin, Inc.

A week before the second runoff of Ukraine’s presidential election in December 2004, Russia dismantled Yukos Oil. In his public remarks ever since the affair began, Putin had insisted that the Kremlin had no intention of doing so, and many people—the other tycoons, foreign investors, ordinary Russians—had believed him. They assumed that even if the entire prosecution stemmed from some animosity toward Khodorkovsky, Putin would not destroy the country’s richest company. As the prosecutorial assault continued on Khodorkovsky and Yukos itself, however, it became harder for Putin to protest his innocence or to deny what was becoming obvious. He may not have initiated the criminal and tax charges against Yukos, according to one Kremlin official, but “at some point he moved from observer to participant, and then the leader” of the final demolition of the company and the redistribution of its richest asset, the crown jewel of its oil empire.1

Yuganskneftegaz was Yukos’s main production unit. It was located on a tributary of the Ob River in western Siberia. The first wells were tapped during the Soviet oil boom of the 1960s, but production had steadily declined over time, grossly mismanaged in the years before and after the Soviet collapse. Khodorkovsky’s bank acquired the project as part of the notorious “shares for loans” deal that protected Yeltsin’s presidency. The bank’s investors paid a mere $150 million for Yuganskneftegaz, and after a turbulent few years they brought in foreign expertise and technology to turn it around.2 By the time of Khodorkovsky’s arrest, it was producing 60 percent of the company’s oil.

The Ministry of Justice announced that it would seize and auction off Yuganskneftegaz only five days after the trial of Mikhail Khodorkovsky and his partner, Platon Lebedev, opened in July 2004 inside a tiny, heavily guarded courtroom in northern Moscow. The prosecutors had not yet finished their opening arguments on the eleven criminal charges Khodorkovsky faced, let alone convicted him of any wrongdoing, but the expropriation of the company’s most valuable asset would not wait. Khodorkovsky’s supporters gathered outside to protest on the day his trial began and would reappear periodically for the next ten months, even though the proceedings already seemed a foregone conclusion. The trial was so riddled with procedural violations, including harassment of the defendants and witnesses, as well as their lawyers, that it was reminiscent of a Soviet show trial. And like those earlier trials, the prosecutorial spectacle sent an intended chill through the political and economic elite, silencing even the few voices willing to speak out after Khodorkovsky’s arrest. Other major oil companies moved quickly to forswear the sort of tricks Yukos used to lower its taxes and instead took to boasting about how much in taxes they were willing to pay. Except for Khodorkovsky’s supporters, his spokespeople, his investors, his lawyers, his friends and family, fewer and fewer dared to openly confront Putin’s Kremlin on any issue. “I’m very scared to name names now,” Arkady Volsky, the head of the industrialists’ union, told a television network, saying he knew who was behind the Yukos affair.

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