Rosneft’s Returns Boosted by Theft of Yukos

I have spent years writing and publicly speaking about the economic motives behind the Russian government’s campaign of persecution against Mikhail Khodorkovsky. I argued repeatedly that the unlawful expropriation of Yukos, the market value of which was estimated to be around $200 billion, was methodically placed into government hands, in particularly the state oil company Rosneft, which is overseen by the top presidential adviser Igor Sechin (one of the architects of Khodorkovsky’s show trial). What is often under-emphasized is the extent to which this daylight robbery has contributed to Rosneft’s value, turning an under-achieving, mismanaged producer into the country’s #1 oil company. The impact of the Yukos theft has finally been acknowledged by Rosneft itself in a statement released yesterday, which says that profits have increased by a staggering 80% thanks to the acquisition of these assets.

According to coverage by the Moscow Times, the “purchase” of Yuganskneftegaz, the chief production arm of Yukos, enabled Rosneft to more than double its refining output and radically increase oil production over the past year. Rosneft’s seven refineries churned out 11.9 million tons (up from just 5.7 million before the theft of Yukos), yet they still trail behind LUKoil, which refined 13.2 million tons. The considerable and increasing export taxes on crude oil imposed by the Russian government has led many oil producers to do their refining in Russia.Following critical judicial decisions in Switzerland and the Netherlands, and more telling gestures such the raids of PricewaterhouseCoopers offices and the public blackmailing of Vasily Alexanyan, there are very, very few people who even argue that the transaction which brought Yuganskneftegaz into Rosneft’s possession was remotely legal or normal. Does anyone even remember the mysterious Yukos buyer Steven Lynch, whose shady backdoor talks with former company execs put the nail in the coffin for credibility of the auctions?So while no one tries to defend the theft any more, there is still is a widespread “business as usual” attitude with regard to Rosneft, not least demonstrated by the participation of major Western financial institutions such as Dresdner Kleinwort, Morgan Stanley, and Citigroup (although Citi is trying to sell their stake now). There is no excuse for Rosneft shareholders to not be aware of their complicity in a crime.