Khodorkovsky’s Interview with Forbes Russia

On 21 November 2012, Forbes Russia published a much talked about interview with Mikhail Khodorkovsky, in which he commented at length regarding BP’s decision to give up its TNK-BP stake and become a large shareholder of state-owned oil company Rosneft, whose primary value is based upon the controversial seizure of Yukos assets. Below is an English translation of the interview.

One can look at the transaction for the purchase of TNK-BP by Rosneft, as the latest stage in the legalisation of the former YUKOS’s assets. How does it seem to you, is this already a final accord and you can now forget about your claims or possible claims on the part of minority shareholders forever, the train is gone? Or are some kind of actions and attempts to contest, to litigate this property possible? Are you going to be engaging in this if you have such an opportunity?

Without a doubt, there is a serious aspect of legalisation of assets illegally seized from YUKOS in Rosneft’s transaction with TNK-BP. It is difficult for me to judge how much such an attempt is legally justified. Nevertheless, it is obvious: today’s regime is never going to admit its mistake in such a politically sore question, while the minority shareholders are never going to accept the multi-billion losses that did not have commercial grounds. That is, the final discussion, apparently, is still ahead.

But as for me, I renounced my shares way back in 2004, hoping thereby to give the company a chance at being saved. So for me the question is closed.

They are going to be paying the AAR shareholders $28 bln. for their interest in TNK-BP; these same people took away your company from you. Why such a difference; what is the reason for it? Fridman and his companions have never been noted for particular loyalty to the power; why were they dealt with completely differently than you were? Is it simply that the times have changed, or are some kind of other circumstances important?

Perhaps my example turned out to be convincing in some way not only for entrepreneurs, but for the power as well. Although it seems to me that the reasons for the “remarkable generosity” are more multidimensional, as are the mutual relations with the power of M. Fridman and his companions. However, I do not recall that Mikhail Fridman and his partners have ever been noted for political disloyalty.

Can this transaction be compared with the sale by Roman Abramovich of Sibneft – was a very significant for [sic] sum involved and was everything done quickly and without conflict there too? Are there perhaps some differences as well, in your view?

The transactions went through in the interests of two different, competing groupings of the Kremlin bureaucracy. I know that the people preparing the decision on the purchase of Sibneft had refused the YUKOS assets, not desiring to become involved in a dirty game.

This did not stop the current purchaser of TNK-BP. He considers pseudo-legal force to be an altogether normal method for resolving his tasks. In connection with which I would like to wish Mr Dudley good luck. He is going to need it.

There is a feeling that you would have been able to effect a no less advantageous transaction had you not gone for open conflict with the power in your time: selling the company dearly, getting the opportunity to invest them [sic] wherever you liked and to engage in whatever you liked, including, for example, funding the opposition, remaining at liberty and in safety. But this way, it turns out that you have been defeated, have placed yourself and your employees at risk, and lost the company, while not acquiring anything in exchange. Do you not wish that you had behaved specifically thus in your time? And could everything have been done differently then?

This may sound banal, but history does not know the subjunctive mood. I want Russia to become a modern, democratic, European state. I chose my path and am following it for more than 9 years already.

I regret that YUKOS employees suffered because of my conflict with the powers. As much as this was possible in years past, I tried to help them.

In contrast with the majority of my colleagues, my partners and I participated directly in the fight for a new Russia – in 1991, in 1993, and in 1996. “New rules” that froze into place an authoritarian-bureaucratic revanche would have turned out to be unacceptable for us.

By the way, if I had understood the scales of the future “reaction” back then, it is likely that I could have limited the conflict to just my own persona. Alas, I underestimated. And in general, intrigue is not my strong suit.

As to the question of the balance of “losses and acquisitions”, it is more complex. Now I know: if you truly believe in something, you pay not with money, but with your life. I had it good for too long as it was.

In recent times, a feeling has begun to take shape that influential businessmen of the 90s are gradually stepping away from their affairs, are selling their business, are stepping further away from the epicentre of diverse events, and their place is gradually being occupied by other people, from the 2000s. In your opinion, have they simply grown tired, decided to prepare for a notional “retirement”, is it simply no longer interesting for them to engage in business in Russia, or are they simply compelled to concede living space?

Big business in our country is now bringing its owners too many risks and humiliations if they do not belong to the inner Putin circle. At some moment, any person poses himself a question: do I need this for the sake of extra (in the sense of superfluous) money?

What are the consequences of the transformation of Rosneft into a company with annual production of 200 mln tonnes going to be like for the rest of the participants in the market? It looks like a second Gazprom is going to appear in Russia, and is going to be dictating its will to the rest from the same positions. What might Rosneft’s next steps be like? Who might become a new object of its interest? And how would you act were you now the owner of an oil company in Russia: would you try to keep the company independent or would you agree to cooperation or to acquisition on the part of Rosneft? What position is more advantageous now from a rational, mercantile point of view?

It is imperative to understand that I. Sechin justified his undertaking by geostrategic interests. In such a manner, we are dealing with not simply the creation of a large oil company, but with the idea of state capitalism and a tool of an “energy superpower”.

The rest of the participants in the Russian oil market (and perhaps even the entire energy market) are going to be forced to either “fit in” in the capacity of a “useful element” of this policy, or get out.

The question is only in how quickly the inefficiency of such a model becomes critical for the country. Much here depends on world prices: at $140 per barrel, we could be talking about 10 years, but at $80 per barrel – two or three.

I shall leave the topic of possible political changes beyond the scope of my scrutiny. If you adhere to the Western business models declared in the past two-three decades, it is time to leave, and has been for a long time. If you allow for a more “flexible view” of questions of corruption, the environment, human rights, and the like, then why not “play”? Since the times of the Roman Empire people have said: “money does not stink”. The rest – foolish nonsense for idealists. Is that not so, Mister Dudley?

Very many people are now discussing the scenario of the further development of events in the oil sector and in the economy as a whole – one has to conjecture, because nobody can climb into Putin’s head, where, by all appearances, this actual scenario exists. Your forecast – where are we going to be in 5-6 years if we continue to follow that same course? What kind of an economy and what kind of a country can we look forward to?

I deem that Putin’s scenario is state capitalism. Perhaps he himself is not aware all the way of the final destination of his route, but the aggregate of the steps that are being approved by him are leading there. They are the consequence of a combination of a Soviet mentality and the habits of an employee of the special services – the usual difficulties with accepting new things for a person of his age…

State capitalism for Russia – this is the predominance of state monopolies, and this means an unavoidable constant rise in tariffs.

This is a primitivisation of the economy because of the impossibility developing business outside the not-large number of sectors supported by the state. This is a return to the ideas of “industrial giants” and “mega-projects” in industry. As a result – low rates of growth, a lagging behind China and other rapidly developing countries, and not just the West, in the area of infrastructure, science, and the social sphere, and an inevitable increase in the tension within society.

Nothing particular is going to happen over 5-6 years. We will build several dozen slightly outdated manufacturing operations, we will lose yet another series of surviving scientific schools, we will restore 10-15 lines of military hardware for mass armies, and so forth. It is not for nothing that many are speaking about the superfluity of higher education. Something between the Argentina of the 70s and today’s Venezuela, with China instead of the USA in the capacity of the principal purchaser of raw materials. Sad, but one can live like that.

Negative scenarios are popular, but do you see some kind of positive scenario over these next 6 years? If yes, then what is it like, where and what kind can this positive be, and under what conditions?

The entire system of state administration is tailored by Putin “to fit him” for the sake of holding on to the position of “supreme arbiter” and “miracle-worker”. Without him, this system does not work. With him – it works within the limits of his personal limitations, about which I have spoken earlier.

A positive scenario is possible only in the event of Putin’s gradual departure from power by way of the restoration of real institutions of state (an empowered parliament, an independent judiciary, financially independent local self-administration) and competition, as the “engine” of change, of dialogue with society.

Then it will be possible to sharply activate entrepreneurial activeness at a local level, to limit the avarice of the bureaucracy and remove the obstacles created by it, to stimulate the development of a series of cities of 5-10 million with university centres (there had been such a project, but it quietly “faded away”), to attract direct foreign investments together with “carriers” of knowledge and technologies, and to update the transportation and utilities infrastructures. To throw accumulated reserves (if they still exist) or development borrowings into such projects without fearing that “they will rob everything”.

Over 10-15 years, it is perfectly possible to attain a level of utilities-and-social development and labour productivity close to that of Canada for the 8-10 “growth centres” (300-400 km agglomerations) where more than half of the population of our country is going to be residing.

For the rest of Russia – especially the nationality republics – we can leave the opportunity for slower, gradual development.
Over 5-6 years, the president, can set the vector of modernisation and create the institutions providing for its support. But in so doing, he is going to have to sharply reduce his personal resource of popularity, make way for those who will be taking over, and take upon himself the responsibility for the inevitable dissatisfaction of the conservative circles.

But Putin, as I imagine, is going to endlessly continue to look for a “Gandhi” for dialogue. All the more so, the “aggressively obedient majority” is also waiting for Gandhi to be able to hand its destiny over to him.

The trouble is also that even if a “Gandhi” were to appear right now, they would declare that he is an extremist and would pour shit on him in “Anatomiia… 18”. After which Putin would say that “that was not the Gandhi he had in mind”.

By the way, miracles do happen, only for this you need to love your country very much and to believe in the people of your nation.

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