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Yukos Is the Turning Point of Russian Authoritarianism

The new Economist has an article reviewing the meaning and legacy of the Yukos affair, emphasizing the enormous damage done to rule of law, how the assets were passed from one set of private hands to another (people too often believe that the public is somehow benefiting from state ownership), and, most importantly, identifies the Yukos affair as the critical turning point in Russia’s slide toward auhoritarianism and corporatism. yukos11.jpgrosneft11.jpg The theft of the century created a dangerous cocktail of economic and political power concentrated in the hands of the Kremlin – intoxicating indeed Excerpts:

At the very least, the Yukos affair changed the shape of the Russian oil industry, giving the state control over energy resources and doubling its share of crude output to more than 50%. But the legacy of Yukos’s destruction goes beyond oil. If the emergence of Yukos epitomised Russia’s transition from a planned economy to the wild capitalism of the 1990s, which for all its excesses thrived on private initiative, its destruction was a turning-point towards an authoritarian, corporatist state. What triggered the attack on Yukos and its main shareholder, Mikhail Khodorkovsky, is still a matter of argument. Was it Mr Khodorkovsky’s political ambitions, or his plans to sell a large chunk of the company to Exxon Mobil? Was it his intention to build private pipelines, or the cupidity of the new elite? It was probably all of the above. But what has become clear over the past four years is that Yukos’s fate was sealed once Vladimir Putin became Russia’s president in 2000. … The president’s desire to curtail the political and economic influence of the oligarchs was understandable. Mr Putin could have levied a windfall tax on the oligarchs, or renationalised the energy companies and compensated shareholders. Instead, he used the legal and tax systems to bankrupt a healthy company and pass the prize from one elite to another—this time, a group closely tied to the KGB, the Soviet Union’s former security service. Russian tsars often banished disloyal aristocrats who prospered under a previous reign and expropriated their wealth. What was new with Yukos was Mr Putin’s pretence that all this was legal. That eroded democratic institutions and further discredited the law by using it as a political instrument. An attack late last year on Royal Dutch Shell (allegedly on environmental grounds) and an earlier economic blockade of Georgia, which was attributed to health regulations, were part of a pattern that began with Yukos. After a bogus trial conducted by servile judges, Mr Khodorkovsky was sent to a Siberian prison camp and Yukos was broken up and pushed into bankruptcy through ever mounting back-tax claims. The figures did not add up. In December 2004 Yuganskneftegaz, the main production unit of Yukos, was sold in a rigged auction for $9.4 billion to a front company registered in a grocery shop in a provincial town, which was then bought by Rosneft. (When Rosneft came to float its shares on the London Stock Exchange, the same asset was valued at close to $60 billion.) The sums kept changing, but the formula stayed the same: the tax bill always ended up exceeding the value of Yukos’s assets.