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Russia: Yukos Oil Owners Rich Beyond Belief

  • Michael Lelyveld

News of huge fortunes made by the owners of Russian oil company Yukos have met with surprise in the West and some resentment at home. Oil firms are trying to satisfy new standards of transparency for access to Western markets, but it is unclear that the Russian authorities are entirely ready to overlook the past.

Boston, 25 June 2002 (RFE/RL) -- Russia's Yukos oil company took a big step toward Western markets by disclosing details of its ownership last week. But it may also have touched a raw nerve in the Kremlin with its revelations of huge personal wealth.

Honoring a long-standing commitment, Russia's second-largest oil company named its major shareholders on 19 June, as required for a listing on the New York Stock Exchange.

The move may help to boost Yukos into the ranks of the world's largest oil companies. It was recently rated 10th in terms of market value by the London-based "Financial Times."

Russian and Western media have both marveled at the astonishing fortunes amassed in the past six years by Yukos owners. The 36 percent stake of chief executive Mikhail Khodorkovskii is valued at over $7 billion, nearly double the amount estimated this year by Forbes, a U.S. financial magazine. The disclosures came from Menatep, a holding group that owns 61 percent of Yukos.

Five lesser-known shareholders, each with at least 5 percent of the company, also fell into the $100 million range, "The Moscow Times" reportd. They include Leonid Nevzlin, Vladimir Dubov, Platon Lebedev, Mikhail Brudno, and Vasilii Shakhnovskii.

Publication of the names could mark progress in shedding light on the shadowy process of privatizing the post-Soviet oil industry. After years of secrecy, Yukos now seems to be trying to live up to the slogans of "open company," "full transparency," and "good corporate governance" that it proclaims on its website.

The progress in building oil giants like Yukos has also been remarkable since the ruble collapse of August 1998. In the first quarter of this year, Yukos production jumped 17 percent to an average output of 1.25 million barrels per day.

But not all the reactions have been favorable. In a critical commentary on 21 June, the Russian government news agency RIA-Novosti blasted the disclosures under a headline reading "Oil billionaires appeared in Russia but they hide their money in Gibraltar."

The agency pointed to the registration of Group Menatep in Gibraltar, a favorite tax haven, adding, "This information about the Russian billionaires rouses particular interest in the country where the living standards of 60 percent of the population are below the poverty line."

The motive for the attack from the official press service is open to interpretation, but it can hardly be the response that Yukos officials wanted. One possibility is that the remarks may reflect genuine Kremlin anger. Another is that they may be an attempt to deflect public anger from the government by giving vent to it instead.

Few are likely to hear the news of the enormous riches at Yukos without remembering where they came from. Most of the big stakes in Russia's oil industry were distributed at bargain prices by President Vladimir Putin's predecessor Boris Yeltsin in the infamous 1995 loans-for-shares scheme to fund his re-election campaign. At a minimum, it can be said that the opportunities of privatization were not evenly shared.

It remains an open question whether the fortunes that have been built on such doubtful foundations have been permanently legitimized. For exiled oligarchs like Boris Berezovskii and Vladimir Gusinskii, who were targeted by Putin during his first year in office, no legitimacy was conferred. Still, it is hard to imagine that Khodorkovskii and his colleagues would have allowed such disclosures without knowing the risks.

In another sense, the Yukos announcement may have been unfortunately timed. By coincidence last week, Russia was disappointed in its campaign to be removed from an international money-laundering blacklist of the Financial Action Task Force (FATF). Officials meeting Paris said that action on Russia's application would come no sooner than October, Reuters reported.

No one has alleged wrongdoing by the billionaire shareholders at Yukos, but the contrast in the campaigns for legitimacy may be too much for some in the Kremlin to bear.

Speaking last week to the Russian Chamber of Commerce and Industry, Putin sounded a combination of forgiving and warning notes to those who hold profits in offshore accounts, according to Reuters.

Putin said, "The government must not catch everyone by the sleeve demanding immediate explanation of where this money came from, especially as it failed to create normal conditions for investing this money in the national economy." But he added for those who resist plans for repatriation of the funds that the government might freeze access, saying, "You will be run off your feet in court trying to unblock these accounts."

Both Yukos and the government seem to be trying to open new chapters in dealing with the billions of dollars created from Russia's oil resources. But it not clear that the past will simply be forgotten at home as Russia's super-rich try to expand their empires into financial markets abroad.