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. Last Updated: 07/27/2016

The Town in the Eye of Yukos Hurricane

MTA train carrying apatite concentrate leaving one of Apatit's two enrichment factories. A car is filled with the ore every five minutes.
KIROVSK, Murmansk Region -- The 30,000 inhabitants of this Arctic town in the middle of the vast Kola Peninsula pride themselves on being happy and hospitable.

There are reasons for this: For an industrial town, the multicolored buildings look refreshingly pristine and the view is panoramic, especially this time of year, when the sun always hangs in the sky, except for an occasional dip behind the barren and breathtaking Khibiny mountains.

But life hasn't always been so idyllic.

Like hundreds of other outcroppings in Stalin's gulag archipelago, Kirovsk was designed as a labor camp of death and detainment. It is a city, they say, that was built on bones.

For the native Khibiny people, life changed forever in the fall of 1929, when the world's largest and highest-quality apatite deposit was discovered buried deep beneath their native land. Apatite, which comes from the Greek word for "deceit" because it is often mistaken for other minerals, is the key source of phosphorous for plants and thus the key ingredient in most fertilizers. Large deposits of these calcium phosphates are found in a few other areas of the world, but none can match the quality of Kola's reserves, from which numerous condensates used by numerous industries are created. The Soviets even found a military application for the stuff, making liquid explosives out of it during World War II.

The discovery was a godsend for the nation's struggling farming industry, and Sergei Kirov, the charismatic Politburo member, wasted no time capitalizing on the find, convening a summit of top geologists to assess mining prospects while simultaneously ordering the creation of a new town, Khibinogorsk, so extraction could commence immediately.

And it did -- between 1930 and 1932 the Soviets sent nearly 48,000 people to work the area.

After Kirov was murdered in 1934, setting off a chain of events that culminated in the Great Terror, the town's name was changed to Kirovsk in his honor and the presence of the former Leningrad leader has been felt in the area ever since. A statue of him dominates the city center and the small cabin where he made the decision to create the town has been turned into a museum.

But ask anyone in Kirovsk these days who the father of their town is and the answer isn't Kirov. It is Khodorkovsky.

Alla Startseva / MT

Miners working in the Kirovsky mine, which is one of the largest mines in Europe.

"We know that [Mikhail] Khodorkovsky and Yukos own everything here, though we don't know if that is good or bad," says Denis, a foreman at one of the mining units of Apatit, the company that controls nearly every facet of life in Kirovsk and its neighbor Apatity, where 60,000 people live.

Some 15,000 people now work at Apatit, a $500 million per year company that produces nearly all of Russia's apatite concentrate and about a third of the world's.

Although well-known to scientists for decades, few people had ever heard of the company before this month, when it found itself at the center of a political storm in Moscow that has grown so fierce that it is threatening to overturn the economic order of the nation.

How this prized asset came to be part of Khodorkovsky's empire is at the heart of the government's assault on Yukos and its parent company Group Menatep, which began with the arrest of Menatep chairman Platon Lebedev on July 2 for allegedly stealing a government stake in Apatit in 1994, and has since mushroomed into allegations of tax evasion and even multiple murder.

Officially, Apatit is owned by a company called Russkiye Investory, which is controlled by Khodorkovsky and other core shareholders of Yukos and Menatep, but the people of Kirovsk are less concerned with who owns their factory -- and nearly every other business in town -- than they are with avoiding a repeat of the days of desperation that accompanied the company's privatization a decade ago.

In 1994, when the factory's workers became its owners, production ground to a halt, salaries were frozen and layoffs began as management scrambled to concentrate the company's shares in their own hands.

"Most people were left on the streets, but even those who managed to save their jobs were poor," recalls Irina Dyomina, who now works in the local post office. "How was it? It was terrible. People were starving and scared."

To this day, a poster hangs over one of Apatit's mines offering workers 150 rubles and "monetary compensation for your vacation" for each share they sell.

Back in 1994, the word among workers was that Khodorkovsky had ordered their salaries frozen to pressure them into selling their shares. Yukos denies this, as does Apatit general director Alexei Grigoryev.

Grigoryev refuses to discuss the details of privatization, saying he was only the chief engineer of one of Apatit's mines back in 1994. But he was insistent that people were free to do what they wanted with their shares.

"We had a normal privatization process," Grigoryev says in an interview in his office. "Everyone had the right to do anything they wanted with their shares. Some decided to sell their shares, some decided not to -- there are different ways to deal with property," he says, adding that employees still own part of the company, although he wouldn't say how much.

Many people, however, refutes Grigoryev's version of events.

"This is simply not true," says Denis. "Most employees were forced to sell their shares shortly after privatization took place -- including my mother. She was an accountant at the factory and received quite a large amount of shares, but the company ordered all the employees to sell their shares. People had to sell to keep their jobs."

Whatever actually transpired a decade ago, the important thing now is to avoid the chaos that engulfed the town and the factory a decade ago, Grigoryev says.

"Not many people remember what was happening with this company 10 years ago. Mines were closed, factories were shut, nonpayments were huge, and our customers could not pay us because they had financial problems of their own," he says.

"Today, however, we have a different situation."

Indeed, the dark days of privatization seem like a distant dream because the company has undergone a remarkable transformation.

Wages are far above the national average, with miners getting an average of nearly $600 per month, despite rising unemployment in the area. An electronic sign, reading "No Vacancies," greets visitors to the company's main office.

Alla Startseva / MT

Apatit's smart red-brick headquarters in Kirovsk, from which the company conducts a business worth $500 million per year.

With business booming, management is embarking on an aggressive modernization program and is even planning 12 years down the road, which would have been unthinkable just a few years ago.

Igor Zaporozhets, Apatit's first deputy technical director, says the company has been investing tens of millions of dollars per year in new equipment to increase efficiency, and the results have been dramatic.

"Of the 8.5 million tons of apatite concentrate we produced last year, 53 percent was mined by machines. Ten years ago the figure was about 15 percent," he says. "The new equipment is safer, but it also increases the prestige of being an underground miner."

The company plans to invest a total of $1 billion into production through 2015. "This is what we need and this is what we will do," Grigoryev says.

But lurking in the shadows is the very real threat that the case against Lebedev could see the company thrown into chaos once again.

"In the last 10 years the company has gone through many troubles and has survived them all," Grigoryev says. "But the recent events in Moscow worry me a lot, because here is an organism that breathes and works. We have just normalized work and have long-term plans. It would be a shame to see that undone."

The Yukos affair has already produced a notable change in the psychology of Apatit's employees, who rushed en masse to withdraw their savings in the days after Lebedev's arrest. Ironically, in Kirovsk and Apatity it is Menatep St. Petersburg that handles all the functions normally handled in the regions by state savings bank Sberbank, but few people here know that Menatep St. Petersburg is headed by Lebedev.

The local newspaper, 2X2, published an announcement from Menatep St. Petersburg in its Friday edition urging people not to panic and empty their accounts because it had enough money to meet all its obligations.

Grigoryev says he is actively cooperating with authorities in their investigation, but he says he can't understand why Apatit is being linked to Yukos. He also refused to say where the company got the financial resources it needed to revive production in the mid-1990s.

"A criminal case has been opened, but I'm not going to talk about it. Yes, investigators were here last week for three days and made an inquiry. We know the law and presented them with what they asked for, but the volume of information is large and concerns the company's activities, so it is impossible to present everything at once. We are sending more documents to the General Prosecutor's Office every day."

A Moscow court on Wednesday is due to decide whether or not to release Lebedev, who has been in Lefortovo prison since his arrest. If he is released, many political observers say the storm swirling around Apatit will likely subside, which would suit Grigoryev just fine.

"Hopefully they will sort out this issue," he says. "It is important to preserve the belief that we are all doing a big and great thing at Apatit, and that we will not return to that horrible situation we were in 10 years ago."

Meanwhile, as the case centered on their company enters a fourth week, the miners of Apatit are still wondering what all the fuss is about.

"Until now we didn't even know who Platon Lebedev was," says Mikhail. "Well, actually, we still don't know who he is." ."