WASHINGTON, Nov. 26 (UPI) -- The Russian authorities have currently "frozen" $13 billion worth of assets -- the 44 percent of Yukos shares controlled by imprisoned oligarch/entrepreneur Mikhail Khodorkhovsky. The big question agitating Moscow and the world oil market: what the hell are they going to do with them?
According to the "Moscow Times" Wednesday one possibility is that control of Yukos, now Russia's largest oil company, will fall into the hands of the rival oligarch Roman Abramovich, owner of the second largest stake in Yukos after Khodorkovsky (and therefore the largest "unfrozen" stake.) Unlike Khodorkhovsky, minority shareholder Abramovich, the former governor of the remote Siberian Chukotka region, has established himself safely abroad, with his main base in London, where he sought social integration by buying Chelsea Football Club. He acquired control of Sibneft, Russia's fifth largest oil company, at the same time as Khodorkovsky acquired Yukos, in the infamous oil-for-debt privatizations of 1995. When Yukos and Sibneft merged, earlier this year, Abramovich became a major shareholder in Yukos. According to the Moscow Times, Abramovich was close to Alexander Voloshin, former head of the presidential administration, who resigned after Khodorkhovsky's arrest, having allegedly assured Khodorkovsky that he would not be arrested.
It's obvious how Abramovich would benefit by gaining control of Yukos, but not at all obvious why president Putin, who is presumably firmly in control of the Russian state apparatus, would allow him to do so. While Khodorkhovsky's political meddling and modest (by oligarch standards) bankrolling of the opposition Communist party may have annoyed Putin, his political ambitions posed no real threat to Putin in 2004, and it is indeed unclear whether he really had any. As Khodorkhovsky told the Carnegie Endowment when he was last in Washington in September; according to opinion polls, around 70 percent of the Russian people say they hate oligarchs more than any other group of people, so his chances of getting elected President of Russia (as distinct from Governor of some remote province, which he could buy if he wanted to) must be very limited indeed, either in 2004 or 2008.
In another Moscow Times report, also Wednesday, it was suggested that Khodorkhovsky is indeed planning to run for president of Russia, against president Putin next March, managing his campaign from his Moscow jail cell, on the grounds that he can't be disqualified from the presidency before he has been convicted, which his lawyers are confident will not have happened by March. It's possible, of course -- Khodorkhovsky unquestionably has an ego as big as the Ritz -- but again irrational. His major asset -- 44 percent of Yukos -- is tied up, so any campaign, while possibly well funded by normal standards, could not be overwhelmingly well funded in a country as big as Russia, where the government machine was controlled by the other side. Thus he would be most unlikely to overcome the electorate's natural suspicion and hatred of oligarchs to do well enough to make an impact; the idea that the tough, poverty-hardened Russian electorate would come out in a "sympathy vote" for an imprisoned billionaire is simply laughable.
If Khodorkhovsky is no threat to Putin, keeping him in jail and making him disgorge most or all of his not particularly ill-gotten (by Russian standards) billions may well be attractive, but setting up Abramovich, who has a safe bolt-hole and a high-profile media presence in Britain clearly isn't. Hence, if Putin is rational, we can expect any Abramovich moves towards taking overall control of Yukos to be blocked. If Putin wanted a Russian oligarch controlling Yukos, he would have left in place the one he had, who whatever his faults had done an excellent job of building the company up, putting an international-quality management team in place, and imposing by Russian standards a remarkably high standard of market discipline and shareholder protection.
If an oligarch is not to own Khodorkhovsky's Yukos stake, there remain two possible homes for it: the Russian state and a Western oil company.
Since 44 percent of Yukos is a highly valuable asset, and the company is, to old-fashioned economic thinkers, of unquestionable strategic importance, Putin may be tempted simply to keep it. With the majority of Yukos shares still in private hands, he cannot technically be accused of reversing privatization by doing so, and the revenues from owning 44 percent of Yukos would potentially be an immense benefit to the Russian Treasury.
The problem with this solution is that, with 44 percent of the shares, the state would have effective control of the company and Putin would probably then be unable to prevent the middle ranks of the state nomenklatura exercising that control, to the immense detriment of Yukos' outside shareholders and the company as a whole. Attracting new capital to the company's development programs would be difficult, and the high quality top and middle management team that Khodorkovsky pulled together would drift away. Yukos, at its peak a $40 billion asset would over a couple of years become a $10 billion asset -- a waste. Putin probably knows this.
The other alternative would be to take advantage of the huge interest by foreign oil companies in owning Yukos, an interest evidenced in September by ExxonMobil proposing to buy 40 percent of the company for around $25 billion, a substantial premium to its then market value, and almost double its current market value. With the uncertainty injected by Khodorkovsky's arrest, that offer would probably not now be available (although it must be very doubtful whether ExxonMobil would have been able to work with Khodorkovsky in the long run.) However, with a stock market value of $13 billion, Khodorkovsky's 44 percent would almost certainly fetch $15 million today. ExxonMobil would bring top quality international management to the company; while they would lack Khodorkovsky's entrepreneurial flair, that may no longer be necessary, as the company is well established and the major "shakeout" in the Russian oil sector has taken place.
The difficulty with this alternative (apart from the regret that the extra $10 billion may no longer be available) is that it shows the premier Russian asset being sold to a foreign oil company. While financially, the Russian Treasury may continue to do very well, through royalty and tax payments, from a Yukos managed to the highest international standards, the loss of face and control involved may be unacceptable to a nationalist like Putin, let alone the Russian electorate.
The optimal solution, for a rational president Putin (which, given that he's a politician facing an election, may not be what we have) is a combination of the two -- sell 22 percent for say $7 billion to ExxonMobil and keep the other 22 percent in state hands. In both cases, the shareholding is less than the 25 percent that gives a legal blocking minority, but it is nevertheless enough to give substantial influence and a very worthwhile share in Yukos' riches. With 78 percent of the shares in private hands, Russian state apparatchik meddling will be limited and career opportunities for top quality Yukos managers maximized; with 78 percent (or somewhat less, counting foreign portfolio holders) of the shares in Russian hands, there will be no danger of the company being sold to a foreign predator. It is, more or less, a win-win situation, or rather, a win-win-win situation, counting the interests of the company and its employees as a third party.
As for Khodorkovsky, it is to be hoped that the full rigors of the Russian legal system will be tempered, once Putin has shown him who's boss and (probably) divested him of his billions. Russia needs his abilities.
