Free The Billionaire! Would That Help President Putin?

Mikhail Khodorkovsky, the former head of Yukos, facing trial in 2004.
IT’S unlikely that Forbes Magazine has too many subscribers in Segezha, a grim town of 35,000 in Russia’s wintry northwest at the edges of the Arctic Circle.

But if by chance it did, the magazine would take some time to get there. Segezha is a train station that became a settlement that’s a long way from everywhere. The Finnish capital, Helsinki, is closer than Moscow, more than 1,200 kilometres to the south, and it’s pretty much snow and ice to the Arctic north.

Saint-Tropez, Segezha isn’t. It’s a place known in Russia as the home of a big pulp and paper operation and as a stop on the Belomorkanal, the 230-kilometre shipping channel connecting Russia’s frigid northern seas to the westerly Baltic, a waterway hewn from the tundra by prisoners of Stalin’s gulags.

But there’s a peculiar poignancy this week about Segezha and its most famous resident, the fallen oligarch Mikhail Khodorkovsky; it’s the week when Forbes announced its famous global Rich List.

This is a publishing moment in which Vladimir Putin might allow himself some fleeting self-congratulations, because the Forbes list helps explain how he’s remained ensconced in the Kremlin for eight years as President and almost four as Prime Minister, carving a harsh and not particularly appealing modern Russia in his image. And perhaps for Khodorkovsky too, as he mucks out Segezha’s prison toilets in his eighth year in detention at Putin’s hand.

Eight years ago this week, Khodorkovsky, then just 40, was ranked 16th on the Forbes list of 2004, boasting a fortune then calculated by the magazine at US $15 billion.

That then made him Russia’s richest person by some margin, and the world’s richest person aged 40 and under. Who was next on that 2004 list, at 17th? That was Mexico’s telco mogul Carlos Slim, with $13.9 billion.

Throw forward to 2012. Last weekend, Khodorkovsky languished in prison in Segezha as Putin, in tears in Moscow, secured a third term as president of a country where, more nakedly than most, money begets power, and vice versa.

And all this as Forbes declared the 72-year-old Slim – the Mexican who was poorer than Khodorkovsky in 2004 – to be the world’s richest person. Slim is worth $69 billion this year by Forbes’ calculation.

That’s impressive, but consider this: Had the youthful Khodorkovsky not been jailed and instead had continued along the corporate trajectory as he was before Putin’s Russia arrested him in 2003, today he would likely boast a fortune far in excess of the Mexican, even considering Slim’s six-fold increase.

That’s because Khodorkovsky’s wealth was mostly built upon oil, a sector which has enjoyed the мать of all booms in the past five to six years, spiking as the world frets about the reliability of supply from the Iraq mess, from a wobbly Middle East confronted by the Arab Spring and from the threat of conflict in Iran — and all this after the Kremlin shut down Yukos, the company Khodorkovsky controlled.

In 2003-04, Khodorkovsky’s Yukos empire boasted Russia’s most extensive reserves, coveted by Putin’s Kremlin cronies. It was a conglomerate of six Soviet-era oil companies which had been rolled into one giant and then sold off. Khodorkovsky ended up in control. And on the cheap, thanks to former President Boris Yelstin’s privatisation program in the early 1990s, when Russia’s post-Soviet economy was struggling and few had the money, smarts or appetite for risk to kickstart it.

At its peak, Yukos was Russia’s biggest taxpayer, generating almost $2 billion a month in revenues and accounting for about 20 per cent of its oil production — or two to three per cent of global production.

In 2001, Forbes weighed Khodorkovsky’s wallet at $2.4 billion, then the world’s 194th richest person. And remember, this was still a time of capitalism-on-training-wheels for Russian businessmen, barely a decade after communism’s sputtering collapse.

At the time, like much of Russia Inc, Yukos was notorious for its scant regard for corporate governance. And it showed, as Khodorkovsky struggled to attract meaningful external investment to his empire.

But advised by Western consultants, Khodorkovsky then underwent something of a corporate Damascene conversion. He flung open the Yukos books to scrutiny, a move that saw it transformed overnight from villain to the virtuous for foreign investors keen to snare their share of the Russian resurgence. At the same time, he positioned his Siberian-centred oil holdings to trade into the boom in neighbouring China.

It worked. Three years later, Khodorkovsky’s wallet had fattened almost seven times, to $15 billion, as Yukos embraced a transparency of sorts and became a market darling.

But this sharp rise in Khodorkovsky’s wealth and, ipso facto in Russia, in influence, wasn’t because of a rising world oil price. The price per barrel of crude tracked at around $35-$40 per barrel through the entire period when Khodorkovsky’s wealth shot up seven-fold.

His rise and rise was more the stuff they teach in Harvard Business School, Corporate Governance 101. Create a more trusted business model and they — the investors — tend to come. And Russia’s 150 million-strong was an emerging market too big to ignore. (It was around this time that an economist at Goldman Sachs coined the acronym BRIC, for the emergence for investors of Brazil, Russia, India and China that would power the next phase of global growth.)

But in many ways, it was the logical evolutionary step for a businessman — and a budding economy — which by their own admission had much to learn about how modern corporations present themselves in investor-led capital markets. (China had much the same experience after Deng Xiaoping’s open-door policy of 1979, when Beijing’s huge enterprises corporatised and cleaned up their act through the 1980s and 1990s for listings on stock exchanges in Hong Kong, London and New York.)

If Mikhail Khodorkovsky has been tracking the markets while in jail, he’s doubtless reflected on what happened after Yukos was seized; the world oil price took off exponentially. Crude peaked at $145 in July 2008, and has mostly traded in the $100 to $125 range since.

Had Khodorkovsky remained a free man in control of Yukos, and continued an even modest replication of the arc he’d tracked in the period prior to his arrest, his wealth could well be measured today in the hundreds of billions. By comparison, Rosneft, the state-controlled oil giant that took over the Yukos oil assets in 2006 after Khodorkovsky was jailed, today has a market capitalisation approaching $100 billion. And Khodorkovsky’s Yukos was much more than Rosneft.

This oligarch, who back then was improbably financing civil society groups in Russia like a turbo-charged George Soros, today would make Carlos Slim look like a relative pauper.

And all that cash and influence on the ground — via the nongovernmental organisations Khodorkovsky was funding — would likely have presented an insurmountable threat to the Putinistas who control Russia today, described by US diplomats in the WikiLeaks cables as a hugely corrupt “mafia state”.

But this week hasn’t just been about Khodorkovsky’s mislaid place on an American business magazine’s rich list.

Last Monday, as Putin was dabbing the tears that flowed after it was clear he would be reinstalled as Russian President, word came from the Kremlin that the man he’ll replace, Dmitry Medvedev, had ordered a “review” of Khodorkovsky’s 2005 conviction for tax evasion and fraud.

It raised hopes in the Khodorkovsky camp that their hero could soon be freed. Russians speculated that a deal was in the offing, that Putin might free Khodorkovsky and give him a second chance at building a fortune, so long as he doesn’t spend it on opposition politics. Or perhaps the Kremlin might offer Khodokovsky the chance of exile in the West.

Moscow’s usually-silenced political salons are suddenly a-titter. It’s been posited that this is Putin’s sop to placate critics at home and abroad, particularly in Washington, who believe he’s stolen recent polls with massive voter fraud. It also comes as Putin continues to support the Assad regime, which Russia supplies with arms, in the Syrian civil war. Putin’s backing repulses many, as Syrians are being massacred in  Homs and elsewhere in the country.

One theory circulating in the salons holds that Putin is sufficiently spooked by the recent winter demonstrations at home against his rule, to worry they could build through the better weather into a Russian spring. Releasing Khodorkovsky could diffuse some of that and improve Moscow’s human rights record, so damaged by the oligarch’s arrest.

But Khodorkovsky’s lawyers seem sanguine about the review of the case ordered by Dimitry Medvedev. The jailed man’s attorney, Yuri Shmidt, told Novosti: “This may just be a formality that means nothing, or it may be a signal that the people at the top decided to close the case of Khodorkovsky … to prevent it from causing problems for the authorities.”

Also last week, in the midst of this, a film about Mikhail Khodorkovsky by the German director Cyril Tuschi opened in cinemas across Europe.

Simply titled Khodorkovsky, it’s a mostly sympathetic cinéma vérité treatment of his career and plight, oligarch-as-Mandela. It portrays Khodorkovsky as an urbane and thoughtful humanist of modest habits, the antithesis of the tacky and flashy oligarch Russia has thrown up.

Tuschi’s Khodorkovsky is the most compassionate portrait yet of a man who has been comprehensively demonised and reviled in Russia as an industrial-level thief from the Russian people, and a murderer of business rivals too.

The film describes how he rose to become deputy head of Komsomol, the youth wing of the old Soviet Communist Party, developing a network that launched his business career from the country’s post-1991 ashes — most notably on Bank Menatep, the vehicle he and his Komsomol pals rode to become hugely wealthy.

There are poignant interviews with his teary mother, his first love and wife, an old chemistry lecturer and his former business colleagues, most of them interviewed from exile in Israel or London.

We also learn that this latent arch-capitalist had a poster of Lenin on his bedroom wall as a teen. And in letters he wrote to the persistent Tuschi from prisons in Siberia and Segezha, Khodorkovsky reveals his great inspiration is the hero of one of the seminal propaganda texts of Stalin’s USSR: Pavel Korchagin, the protagonist in Nikolai Ostrovsky’s 1936 epic novel, How the Steel Was Tempered, pace its most widely-quoted passage:

“Man’s dearest possession is life. It is given to him but once, and he must live it so as to feel no torturing regrets for wasted years, never know the burning shame of a mean and petty past; so live that, dying, he might say: all my life, all my strength were given to the finest cause in all the world ─ the fight for the liberation of Mankind.”

Writes Khodorkovsky, “Pavel Korchagin wholeheartedly believed in a fairy tale. In his courageous struggles against the adversities of life he has helped many people to fight and be victorious against all odds.

“I now realise what I only glimpsed at then; Korchagin is still my hero today.”

It’s a compelling film, albeit one that’s unlikely to make it to wider Russian release any time soon, though Tuschi says it was screened by a film club at a cinema near the Kremlin last December, two days before the parliamentary elections that would erupt into mass demonstrations.

Perhaps its most spellbinding passage is the fateful televised meeting of Russia’s richest oligarchs with Putin at the Kremlin on February 19, 2003. It is conducted as if it was a seminar where issues of State and Mammon are co-operatively batted around, for the collective Russian good. But it is clear it’s a trap for Khodorkovsky, who had been dabbling in opposition politics and breaking Putin’s unwritten rules on how oligarchs ought to behave. Mindful that it was being televised, Putin also sent a strongman message to average Russians who were doing it hard and becoming increasingly angry at the growing and obvious wealth of those who tipped in to capitalism at the right time.

In the meeting, the President singled out Khodorkovsky, asking if Yukos was paying enough tax. “We did discuss this with you previously, yes?” Putin asks, almost rhetorically. “Not long ago, no?” Khodorkovsky and Putin then spar about state corruption, as the other assembled billionaires keep their discomfitted counsels, not knowing quite where to look. Khodorkovsky’s security advisor, anxiously watching at home, tells the filmmaker, “When I saw this dialogue, I knew this would be the end of us.”

Tuschi asks Khodorkovsky in a letter why he was arrested. “There are many possible reasons,” Khodorkovsky replies, citing the Kremlin’s fear he would sell Yukos to a US oil major (he had been reportedly negotiating with Exxon and Chevron).

He denies wanting to become president, and he retells a popular café theory that Putin was insulted that Khodorkovsky had repeatedly disrepected him and the presidency by not wearing a tie to their Kremlin meetings. (Putin reportedly once told Lord Browne, the former chief executive of British Petroleum, of Khodorkovsky: “I have eaten more dirt than I need to from that man.”)

“But that’s all invented,” Khodorkovsky writes to Tuschi. “One real motive to arrest me was that Igor Sechin, the boss of Rosneft, wanted to take over Yukos.” (With annual revenues of about $100 billion, state-controlled Rosneft is Russia’s biggest, and one of the world’s biggest, oil companies, acquiring the bulk of Yukos via a series of contrived auctions after Khodorkovsky was arrested.) Sechin is a tight Putin aide — likewise an intelligence operative who became a politician, a so-called silovik — and Russia’s deputy Prime Minister, who’s also been Rosneft chairman since 2004.

“I think the main reason is because I supported the political opposition.”