Yukos

» see yukos.com as it lived, on the wayback machine

~ the eulogy ~

Turkey has its own file of companies that changed hands because the state decided they would. The Savings Deposit Insurance Fund took over more than twenty banks after the 2001 crisis, and Telsim went to the fund in 2004 and on to Vodafone the year after. Those seizures had insolvency or fraud behind them, whatever else was going on around them. The Yukos case is the version where the company was solvent and producing at capacity, and the instrument was a tax bill.

Yukos was created by Russian government decree on 15 April 1993, out of the Yuganskneftegaz production unit in western Siberia and a set of refineries. It was privatized in December 1995 through the loans-for-shares scheme, in which a handful of banks lent money to a broke government against shares in state companies and then kept the shares. Mikhail Khodorkovsky's Bank Menatep helped run the auction it was bidding in, and paid $310 million for 78 percent.

What followed was, by the standards of Russian privatization, a functioning company. Khodorkovsky brought in Western auditors and Western oilfield service methods, and production climbed hard. By 2003 Yukos was pumping around 1.7 million barrels a day and was the largest oil producer in Russia, and Khodorkovsky was the richest man in the country.

He also funded opposition parties and talked publicly about export pipelines the state wanted to control itself. He was taken off his plane at Novosibirsk on 25 October 2003 and charged with fraud and tax evasion. From April 2004 the tax ministry presented the company with back-tax assessments that eventually reached about $27 billion, which was more than Yukos had earned across the years being assessed.

~ the dossier ~

~ the auction nobody bid at ~

The tax claims were the instrument rather than the grievance. They reached revenue rather than profit, they were applied to years that had already been audited and signed off, and they arrived with the company's accounts frozen, so Yukos could not have paid even if it had agreed the number.

To satisfy them the state put Yuganskneftegaz up for sale on 19 December 2004. This was the unit producing roughly 60 percent of Yukos oil, valued by an independent assessment at somewhere between $15 billion and $17 billion. Two bidders showed up. Gazpromneft declined to make any offer, which left a previously unknown company called Baikalfinansgrup to take the asset on its first bid, at $9.35 billion. Rosneft owned Baikalfinansgrup within days.

Yukos had filed for Chapter 11 protection in Houston on 14 December to try to stop it, and Judge Letitia Clark issued an injunction on 16 December that Russia simply ignored. The order did have one effect: Deutsche Bank and others froze the financing Gazpromneft had lined up, which is the likeliest reason Gazpromneft stood there and said nothing. The American case was dismissed in February 2005. Russian creditor banks then petitioned at home and a Moscow court declared the company bankrupt on 1 August 2006. The register entry was deleted on 21 November 2007.

~ what fifty billion is worth on paper ~

The shareholders went to arbitration and won the largest award in the history of the practice. On 18 July 2014 the Permanent Court of Arbitration in The Hague ordered Russia to pay around $50 billion under the Energy Charter Treaty, finding that the tax assessments had been a pretext for expropriation. The European Court of Human Rights separately awarded €1.87 billion. A Dutch district court set the Hague award aside in April 2016 and the Court of Appeal reinstated it in February 2020, and the enforcement fights over Russian assets in various jurisdictions are still running two decades after the arrest. Almost none of it has ever been collected.

~ the name that outlived the company ~

Khodorkovsky served ten years. He was convicted in 2005, convicted again in a second trial in 2010 on charges that amounted to stealing the oil his own company had produced, and pardoned in December 2013, after which he left the country. Rosneft, which took Yuganskneftegaz, became the largest oil producer in Russia. Its chief executive Igor Sechin had been deputy head of the presidential administration when the case started.

The assets are all still working. The refineries run and the Siberian fields still produce. The only thing that stopped existing was the legal person that owned them, and that is the part worth keeping: a company is a line in a register, and a state that controls the register can delete the line while every physical thing the company built keeps earning for somebody else.

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