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. Last Updated: 07/27/2016

Khodorkovsky's Yukos Seeks Trust Not Clout

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The era of shoring up capital is over, or so says Mikhail Khodorkovsky, the head and joint owner of Yukos oil company. Now, he says, anyone using power structures to compete in business has fallen out of step with the times.

According to Khodorkovsky, the most important thing for big business today is not using so-called "administrative resources," but guaranteeing a good reputation — both your own and that of your partners. He says this will finally enable people to get on with their work.



Q:
The last major event connected with your company was the victory in the competition for the Talakansk deposit in Sakha [in the Far East]. Why did Yukos decide to participate in the competition along with Sakhaneftegaz?
A:
The Talakansk deposit is particularly complex from the point of view of investment. Therefore, we decided that it wouldn't be a problem for us to act as a minority participant in the project. Sakhaneftegaz has one clear advantage in that they have people who are very familiar with the specific conditions — the vile weather conditions and the huge temperature drops. So when Sakhaneftegaz said they were prepared to form an alliance with us — and they also have investors who are prepared to invest money — to be honest, we couldn't have hoped for better.

Yukos provided a financing guarantee for $1 billion. This money is not sufficient to entirely develop a deposit, but since I have confidence in the Sakhaneftegaz investors, the final amount will be sufficient.

Q:
And Yukos is limited to 25 percent participation in Sakhaneftegaz's capital?
A:
A minority stake in this case is also fine for the company, because everything is starting from zero and the agreements are all being written at once. There won't be any tricks here — we aren't buying sight unseen — we're participating in the project from the word go with people we know. Therefore, I am not worried about our role as a minority shareholder. The western Siberian projects are readily open to investment.

Q:
But it's difficult to expect our businessmen to trust anyone.
A:
Sometimes, I'm surprised. Journalists speak to a huge number of people and, theoretically, should follow changes in society. In the Union of Industrialists and Entrepreneurs, we discussed how much we had changed since 1995. I can tell you plenty about Mikhail Fridman [chairman of the supervisory board of directors of Alfa Group], but I know for sure that if we agree on something, we will stick to it. I couldn't have said that in 1995. Back then we would have both sought ways of strengthening our positions. Today the situation has changed.

Q:
But what about Mikhail Fridman and [Interros chief] Vladimir Potanin? They signed an agreement about Sidanko more than a year ago, and they're still trying to bolster their positions.
A:
This is an old case. That's why I make a clear distinction between new and old cases. The Sidanko conflict has dragged on since 1995 and comprises a whole set of mutual snubs and complex relationships. Personally, I think all this should be forgotten. We often inherit conflicts from old projects. You have to remember that after the crisis, virtually everything changed. Therefore, when the head of a major company tries to apply the principals of 1995-96 to business today, he can expect failure. These principals no longer work today; we live according to different models. And if these models are not adopted, you start to really lose out in the competitive struggle.

Q:
Are you saying we're moving from the model of "the strong takes from the weak" to the "strong try to cooperate?"
A:
I am absolutely sure of this. The competition now is over how fast you can move to this new model and persuade your colleagues that you've moved. Then you'll have the possibility of truly cooperating under conditions of transparency. You can work with companies that value their reputation even when they are your direct competitors. If someone comes along with no reputation, it's highly likely that there will be theft, which I don't want to have anything to do with. The absence of a reputation already affects a company's ability to do business.

Q:
On the subject of businesses living according to new rules, are you and your colleagues prepared to refuse to use "administrative resources?" Perhaps there's already some kind of unofficial agreement regarding this?
A:
Unfortunately, I don't particularly believe in informal agreements. I believe in personal convictions. I'm personally convinced that the law enforcement bodies should not be used in competitive struggles. I told myself that I would never do this, and other people can do what they choose. I'm convinced that it will end with collapse. I believe in peoples' internal motivation. Projects have become very large, and people want to work calmly — not lazily, but calmly — without betting absolutely everything every day. If you want to reduce risks, you use other methods. It's probably possible to have short-lived success if you use law enforcement bodies against your competitors. But in the longer term, you destabilize your own system.

Q:
If we talk about the Angarsk oil refinery — you call it your factory. As far as I know, before April 1, the conditions were to be agreed with the Rinko holding company for acquiring a controlling stake in the company. What is happening now?
A:
Due to the situation with the Anti-Monopoly Ministry and the activities of minority Angarsk shareholders, we've moved this date back. The situation is the same as before. We're the managing company for Angarsk; we're the sole supplier of crude for processing; and we're considering acquiring Angarsk shares. I've set myself a deadline and must inform Yukos shareholders of a status change.

Q:
Almost 82 percent of Yukos shares are in nominal ownership. Who are the true owners of the company?
A:
They're the top managers, a number of whom came to the company quite recently. I can't list all of their names, but I can name some: Sergei Muravlenko, Leonid Nevzlin, Konstantin Kagalovsky, Platon Lebedev, and me, of course. A total of 15 people hold stakes that are about the same size. The main stake of 62 percent is divided among them. You have to understand why people don't want publicity — this is big money. And if thanks to the prudence of the Tax Police, which hasn't told all and sundry, they have the possibility of living quietly without hiring security, so this is something they value.

Q:
Does the company have any big shareholders?
A:
There's one stake that was transferred to the Veteran Petroleum trust fund. Formally, this is a legal entity but in reality, it comprises 40,000 Yukos employees. To be honest, I don't know any legal entities that own more than 2 percent.

Q:
Normally, the management of a company knows its main shareholders. After all, they're in a position to request a report from you.
A:
I speak to shareholders who come up with initiatives, but I don't seek out the people who would rather be left alone. If the owner of 1 percent wants to talk to me, I'll then meet with them personally in the course of a month. I'll meet with the owner of 5 percent in the course of a week. No one has 10 percent. If one of the shareholders with 1 percent to 2 percent doesn't want to meet with me, I'll respect this.

Q:
There were rumors that Yukos was interested in the Sedmoi Kontinent retail chain.
A:
We're studying the possibility of the company participating in retail trade — this is quite a public position. We're not only looking into Sedmoi Kontinent but a broad list of companies. So far, we haven't reached a decision whether we will work in this area or not. I won't hide that I used my authority to spend significant amounts of money on project research to conclude some one-off transactions in order to study the market from within. Before any final decision is made, I'll naturally put this question to the board of directors. There are arguments for and against the move.

Q:
There's no temptation to create a Russian Wal-Mart? Their turnover is higher than that of oil companies.
A:
There's one difference: The average American spends a lot more money. But don't worry, we'll get rich, too.