Observers have expressed skepticism that the Russian government will accept a London-based consortium’s proposal to pay off Yukos’ multi-billion-dollar tax bill and buy out a majority stake in the embattled oil company. The proposal by the consortium, which is led by former Bank Menatep vice president and Yukos executive Konstantin Kagalovsky, was sent to President Vladimir Putin on July 22 by George Miller, a British businessman with long-time ties to Kagalovsky. A spokesman for the consortium, Charles Stewart-Smith, confirmed it was led by Kagalovsky but refused to identify other members. He also would not say how the consortium would raise the money, but confirmed that $10 billion-$12 billion “is in the ballpark” of what would be needed (Dow Jones, July 23). Kagalovsky, for his part, told the Moscow Times that the consortium is ready “to fully cover the debts of Yukos and the loss Khodorkovsky is alleged to have caused the state” — the latter a reference to Mikhail Khodorkovsky, the jailed former Yukos CEO who is currently on trial for large-scale fraud and tax evasion, among other alleged crimes (Moscow Times, July 26).
The consortium’s proposal follows a Justice Ministry announcement that it will put Yukos’ main production unit, Yuganskneftegaz, up for sale to cover the $3.4 billion that the Tax Ministry is demanding from the oil company for back taxes, interest, and penalties for 2000. The company, whose bank accounts and assets have been frozen, has warned that by mid-August it may not have enough cash to maintain its operations (see EDM, July 21, 23).
Former Economics Minister Yevgeny Yasin, who is currently research director of the Higher School of Economics, called attempts by private investors to pay off Yukos’ debts “senseless.” He said that it would be easy for Yukos to find investors willing to cover its debts given the company’s tremendous assets, but added that the government would not accept any such proposal, either by Russian or foreign investors, for precisely this reason. “I’m convinced that all the actions in relation to Yukos were from beginning to end thought up in order to take the property from Khodorkovsky and his colleagues and transfer it to those considered worthy, to those nationally-minded businessmen who will go under the state’s control,” Yasin told Ekho Moskvy radio. “So that the control is more reliable, better that it’s a company with strong state participation.” It is possible that some Yukos assets will be sold to foreigners, Yasin said, “but not Yuganskneftegaz or other good and rich Yukos assets” (Rosbalt, July 23).
Sergei Markov, director of the Institute for Political Studies, echoed Yasin’s comments, although from a somewhat different perspective. “Many people who consider themselves responsible for the country’s sovereignty believe that the owners of Yukos, having received tens of billion of dollars absolutely for free, used it not for developing Russia’s economy, but for seizing state power,” Markov said. “Therefore the task was set to stop this process, to tear Yukos’ owners away from power, and by way of punishment destroy the financial basis for their political project.” Noting that Yukos’ bankruptcy could be imminent, Markov added: “Khodorkovsky must transfer the company to a patriotically-oriented owner. I think the government has a long list of such property owners, who are being lobbied by this or that state official. The authorities, of course, understand the huge price that the country will have to pay for destroying the company, and wants to avoid that” (Nezavisimaya gazeta, July 26).
Interestingly, Gennady Gudkov, a member of the State Duma’s Security Committee and the pro-Kremlin United Russia party and a retired Federal Security Service (FSB) lieutenant colonel, was quite critical of what is happening to Yukos. “Behind all of the political motivations is the desire of a certain group to take over a profitable business,” he said. “This could be the worst-case scenario . . . To take away a business in Russia is the worst thing that we could do for the economy, for the state. It engenders not only uncertainty among Western investors, but — and this is more important — an absolute lack of faith on the part of domestic entrepreneurs, which will certainly affect Russia’s economy [by causing] a massive outflow of capital and reducing the inflow of investment, most of which is our money that was previously taken out of the country. This is a crisis of trust between business and the state” (Nezavisimaya gazeta, July 26).
However, World Bank Managing Director Peter Woicke predicted that the situation surrounding Yukos would not worsen the investment climate in Russia for a protracted period. In an interview with Suddeutsche Zeitung, Woicke admitted that Russia has problems when it comes to the rule of law, but he added that it remains attractive for investment. He also expressed surprise that German firms are indecisive when it comes to investing in Russia (Deutsche Welle, July 25). The Deutsche Bank Eurasia Group, Standard & Poor’s, and Fitch all recently warned that the Yukos case is having a negative effect on Russia’s investment climate (see EDM, July 23).