The Russian Oil Giant Yukos - When Business and Politics Collide
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Case Code: ECON007 Case Length: 18 Pages Period: 1993 - 2004 Pub Date: 2004 Teaching Note: Not Available |
Price: Rs.500 Organization : Yukos Industry : Oil Countries : Russia Themes: Business Enviornment |
Abstract Case Intro 1 Case Intro 2 Excerpts
Excerpts
Yukos - Khodorkovsky's Early Days
Yukos was founded in April 1993 through a decree of the Russian government. The name of the company was derived from the two companies it was formed from: YUganskneftegas (one of the largest oil producers from the Soviet Union times) and KuibyshevnefteOrgSintez (a major refining and petrochemicals company). As per the decree, the company attained control over management of eight distribution companies located in various parts of Russia. During its pre-privatization era, the company went through a rough phase. It faced a lot of problems while trying to combine the distinct corporate cultures and business practices its various constituents brought along with them...
Yukos - Turning Over a New Leaf
As part of transforming its corporate governance practices, in 2000, Yukos adopted a Corporate Governance Charter, aimed at making the company a fully transparent corporation. It established an independent Board of Directors, with nearly half of the board being constituted by prominent international business leaders. Khodorkovsky occupied a permanent place on the Yukos Board. In 2001, Yukos also gained the distinction of becoming the first company in Russia to publish its financial statements (in US GAAP format), that too with retrospective effect (going back to 1997). The company also pioneered the practice of issuing regular quarterly reports (in US GAAP format) of its performance since 2001..
Yukos - Battling The Kremlin
In early 2003, Khodorkovsky got into a public row with the government regarding the latter's insistence on retaining the oil-pipeline monopoly. As global oil demand increased in the early 21st century, exporting large quantities of oil from Russia through rail was not an economically viable option. Khodorkovsky argued that the country stood to lose billions of dollars if oil prices fell before the State could build new export routes. Thus, private companies wanted the Russian government to allow them to undertake independent pipeline projects. The government refused to accept these demands - Mikhail Kasyanov, the Russian Prime Minister, said, "All oil pipelines under construction in Russia will remain state property."...
Russia's Politics-Business Quagmire
Analysts and the business elite in Russia criticized Putin stating that by targeting Yukos, he was risking the country's economic stability. However, according to Lilia Shvetsova, Senior Associate, Carnegie Moscow Center, Putin was ready to take the risk of thrashing investor confidence and the economy for three reasons. She said, "He does not think that this attack is creating problems for Russia's stability. He can see the opinion polls that indicate the majority of the population is opposed to oligarchs. Second, he has been persuaded that this involves more than just economic crimes. And, third, he sees the political ambitions of the old oligarchs as more dangerous for his own position than anything else."
In the light of the Yukos crisis, other oligarchs in Russia began fearing that the government would crack down on them as well. However, Putin addressed these fears saying "I have said many times that the results of privatization will not be revisited in Russia. As for the investigation of the criminal case concerning Yukos, this is a separate case."...
An Uncertain Future - Developments Till March 2004
In December 2003, Khodorkovsky's bail plea was denied and his jail stay was extended till March 25, 2004, well beyond the Presidential elections scheduled for March 14. In the same month, Wall Street Journal reported that Group Menatep had agreed to concede Yukos' control to Sibneft to save the merger. Yukos immediately issued a statement denying the news. In January 2004, Alexei Kudrin, Russia's Deputy Prime Minister, announced that the government would reform its tax laws to close the loopholes within the legal framework which were allowing evasion or minimization of taxes...
Exhibits
Exhibit I: Yukos - Key Facts
Exhibit Ii: Yukos Consolidated Statement of Operations (1998-2000)
Exhibit Iii: Yukos Consolidated Statement of Operations (2000-2002)
Exhibit Iv: Profiles of Oligarchs Targeted by Kremlin
Exhibit V: Shareholder Pattern of Yukos-Sibneft
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