Knight Ridder Newspapers September 3, 2002 Wealthiest man in Russia worth $7 billion By Mark McDonald
MOSCOW - The wealthiest man in Russia, a 39-year-old oil baron with a net worth of $7 billion, started out as a red-blooded Communist Party flunky, a whiz-kid chemistry major whose wildest dream was to become, get this, the manager of a factory.
Instead, he became one of the fine young cannibals who by many accounts, including his own, swindled their way to wealth and power amid the chaotic collapse of the Soviet Union. Now he's the CEO of Yukos, the second largest oil company in oil-rich Russia.
But Mikhail Khodorkovsky isn't behaving like most of his billionaire brethren, the oligarchs, as Russia's rapacious captains of industry are known. Some analysts think he's leading a tentative but promising new move toward adopting Western-style business practices in Russia, a country notorious for its corrupt, murky and sometimes murderous business climate.
PricewaterhouseCoopers now audits and polishes his books while an American PR firm audits and polishes his image. He takes English lessons and travels monthly to Britain and the United States on business. He's donated millions to museums and charities, an unprecedented philanthropy for Russian "biznesmeny." And instead of the usual luxury cars and luxury mistresses, he collects leather attache cases.
Khodorkovsky owns 36 percent of Yukos, which produces some 17 percent of Russia's oil, and he's taking the company into the natural gas and power generation businesses. In something of a miracle for Russia, Inc., Yukos is actually paying dividends to its shareholders.
"Transparency and good corporate governance are the rules of the game now," Khodorkovsky said in an interview at Yukos' plain-brown headquarters in Moscow. "The more developed our market, the stricter those rules need to be. Enron, WorldCom, etc. have merely proven this rule: The bigger the equity market gets, the tougher the rules need to be."
A decade ago, there were no rules. Mikhail Gorbachev was out, Boris Yeltsin was in, and the state property of the Soviet Union - its steel plants and oil fields, its mills, mines and smelters - were sold at rigged auctions for fractions of their real worth.
One of those prizes was Yukos, and in 1995, Khodorkovsky got it for a song - after his own bank organized the bidding.
He had come out of college as an earnest officer in the Komsomol, the Young Communist League. The pudgy Jewish chemistry major was put in charge of strong-arming other Komsomol members who hadn't paid their dues, but he hated the task and quit to start a cafe, which quickly went bust.
>From there, using a student group as a front, he took non-cash barter
credits that Soviet companies used for in-kind trades and laundered them
into rubles. Then in another bit of voodoo economics, he turned the rubles
into hard currency - French and Swiss francs, dollars and Deutschmarks.
Such financial alchemy was impossible before the political reforms (and the
ensuing economic chaos) of the Gorbachev era. Those same reforms allowed
him to start Bank Menatep in 1989. He was 26 years old.
So his has been quite the meteoric career path, from chemistry major to junior party apparatchik to banker to the world's 35th wealthiest person.
"There's nothing strange about this for Russia," said Khodorkovsky, the son of Moscow factory workers. "In the Soviet Union, people would be appointed as director of a huge enterprise at the age of 34 or 35. People retire in our country at age 50 or 60. By Russian standards, in five years, I'm going to be over the hill."
Khodorkovsky was 32 when he snatched Yukos, and since then he has kept control of the company with some of the most creative corporate moves this side of Enron - defaulting on nearly a quarter-billion dollars in loans; changing the locations of shareholders meetings at the last minute; hiding assets in shell companies and offshore accounts and issuing piles of new stock to dilute the votes of opposing shareholders. When his Bank Menatep was being investigated, a truck full of its documents mysteriously plunged into the Moscow River.
"I don't condemn him out of hand," said Peter Oppenheimer, longtime professor of economics at Britain's Oxford University and co-editor of the book, "Russia's Post-Communist Economy." "Bear in mind, of course, that he's a crook. But then so is everyone else. In the West, this kind of behavior is the exception. In Russia, it's the rule.
"And now he's working hard to make people believe he's playing by the rules. But his conversion is not yet proved."
Khodorkovksy's conversion to Western business practices seems real enough, if only because it attracts investors and buoys the stock price. He's aggressively seeking new deals with China and the West, and in July, Yukos sent the first-ever shipment of Russian crude oil to the United States. That first tanker-load that docked in Houston was a symbol, an experiment, and perhaps a portent.
Meanwhile, Yukos has "no business at all with Iraq," Khodorkovsky said, nor is he planning any new ventures there. But he's concerned that an imminent $40 million trade agreement between Moscow and Baghdad could damage Russia's reputation if Russia "gets sucked into violating U.N. sanctions."
"I am hoping," he said, "that we don't have those kinds of idiots in power any more."
But U.S. policymakers and investors watching Russia's expanding ties with all three members of President Bush's Axis of Evil - Iraq, Iran and North Korea - might be inclined to ask: Now, remind us again, whose side is Russia really on?
"If we look at it pragmatically," said the billionaire pragmatist, "Russia doesn't have all that many trading partners that are actually willing to buy Russian goods and pay money for them. America doesn't want them."
A dozen or so brash young oligarchs now control the bulk of the Russian economy, and the word "oligarch" has Corleone-like connotations here. Khodorkovsky, the wealthiest of them all, doesn't much care for the term because it suggests an elite political class. He downplays his clout with the Kremlin.
"In our country," he said, "opportunities for business to influence political life are really quite limited."
Khodorkovsky says he meets one-on-one with Pres. Vladimir Putin "maybe once a year." He insists that he doesn't have Putin's home or cell phone numbers. Although he says he can get Prime Minister Mikhail Kasyanov on the line pretty quickly, the idea that he could simply dial up the president directly is "completely unrealistic."
Khodorkovsky also sees Putin every few months at summit meetings of the Russian Union of Entrepreneurs and Industrialists, the lobby group of select oligarchs. One of the issues he and the others have raised with Putin is the lack of law enforcement in Russia. The security agencies, he says, concentrate on making dirty money instead of on catching crooks.
Kidnapping is a constant worry for Khodorkovsky, the father of four. He has a legion of well-armed bodyguards, of course, and there is 24-hour security at his home in a walled compound an hour outside Moscow. Yukos has emergency operating procedures in case Khodorkovsky is assassinated or abducted.
Has he ever been threatened?
"Oh, no," said Khodorkovsky. "These people don't threaten. It's a business for them. They don't warn. When they have a chance, they snatch you, and then they sell you back."
To learn more about Yukos, turn to its English-language Website, www.yukos.com
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#6 Knight Ridder Newspapers September 3, 2002 Excerpts from conversation with richest man in Russia By Mark McDonald
MOSCOW - On a recent Friday, Mikhail Khodorkovsky, 39, the richest man in Russia, spoke with Knight Ridder in a lengthy, wide-ranging interview. He wore blue jeans and a casual shirt.
Below are excerpts from that conversation:
Q. What's it like to have $7 billion?
A. Ever since I started working, I've always made good money. It provides me a certain freedom. If I go into a store and see something I like, I buy it. I don't worry about how much it costs. ... Also, I don't need to bother filing the paperwork for reimbursement of my business expenses.
Q. Do you keep your spare change at home in a big jar? Then when the jar gets full, do you cash it in at the bank?
A. No, but something similar. I travel to different countries all the time and when I come home I pull out all the change. I have five different containers at home - one for Russian coins, one for American coins, Swiss coins, Euros, and one for British coins. Gradually the quantity increases. Every time before I go abroad, I remind myself I need to take a handful of coins, and every single time I forget. But when I travel with my wife, she doesn't forget.
Q. Will a toughening of U.S. securities rules delay your planned listing on the New York Stock Exchange?
A. Our plan all along has been to do this in 2003 or 2004. ... I can't imagine the rules in America are going to get so much tougher that we won't be able to meet this time frame.
Q. High-profile economic murders and political assassinations still occur in Russia, almost every day, it seems. What's going on? How can this atmosphere be good for foreign investment and Russian business?
A. There is no country on Earth that has yet to rid itself completely of crime. ... It's the price you pay for having a freer society. Things were a lot safer in the old Soviet Union, but I'm not at all sure that today's youth would like to live in the old Soviet Union.
Q. But crime is different from assassination.
A. Yes, there is a problem here. Crime is fundamentally economic in nature, but political crime is another topic. Our parliament, our local authorities, are not as separated from economic activity as they are in the U.S.
Q. Have you been disturbed by the rash of signs saying "Death to Yids," these anti-Semitic signs that are wired to explosives and blow up when someone tries to rip them down?
A. Anti-Semitism is at quite a low level. It does exist, of course, but it's a lot less than 15 years ago. ... The fact is that there happen to be some criminals in the society, these instigators who do things like (rig up these anti-Semitic signs). The fact that (law enforcement officials) still haven't been able to find the perpetrators is a problem. I've mentioned my views to the president.
Q. Have you experienced any anti-Semitism yourself?
A. Me, no. But it exists.
Q. There's a story going around that you control, among other things, the production of half of Russia's fertilizer.
A. Let's be clear about this. I am the manager of the Yukos oil company. Yukos is in the oil business, and we are trying to break into the gas business and maybe into power generation as well. That's it. Yukos has not put its money anywhere else.
I also have my own personal money. The bulk is invested in Yukos. But my investment consultants have told me that I need to divest myself of part of my Yukos holdings. They told me that when core shareholders own 90 percent of a company, that's bad. So over a period of years, we've sold off some Yukos shares - too cheap, in my opinion.
Q. Do you hold American stocks?
A. Some of my money is in portfolios, parts of which are invested in the American stock market. But I don't know exactly what or where. I just don't have the time. I've got a partner (who is) in charge of my money. I don't have a clear idea.
Q. Your house is burning down. Other than your wife and kids, what do you grab before you run out?
A. This is a lot easier question now - I've got to take the computer. My family album is on the computer. All my papers are on the computer. I'd either take the whole computer or pull out the hard disk. It's a Toshiba.
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