#8
The Times (UK)
February 2, 2002
Russian in a hurry ignites oil revolution
BY MICHAEL BINYON
The influence of Mikhail Khodorkovsky is fuelling a boom to revive the former Soviet economy
ALMOST every day he makes the headlines. On Tuesday he announced that Yukos, Russia’s second biggest oil company, had bought 49 per cent of Slovakia’s state oil pipeline. Last week it snapped up its first oilfield in Kazakhstan. Two weeks ago he announced a controlling interest in one of Russia’s leading supermarket chains. A few days later he announced a merger with a smaller oil rival to consolidate his growing empire. Last autumn he came to the rescue of Kvaerner, the AngloNorwegian engineering giant.
Mikhail Khodorkovsky, in his trademark open-necked shirt, jeans and leather jacket, is the Sir Richard Branson of Russia — a man whose own image and daring have made his company one of the most talked about in the country.
Oil is the lifeblood of Russia, and Russia’s oil companies have suddenly become big players on the world stage. Their earnings determine whether President Putin’s Government can pay its wages or push for economic reform.
Their decision whether or not to join Opec in cutting production will make or break the cartel, either forcing the price of oil up or letting it fall further. Their vast investments inside Russia are fuelling the boom that is at last turning around the lumbering economy.
Yukos is the Avis of the Russian oil giants, and likes to think that it, too, tries harder. Unlike Lukoil, the huge conglomerate that inherited the bulk of the old state oil company and many of its seasoned directors, Yukos is an impudent upstart.
The foreign multinationals prowling round the carcass of the old Soviet oil industry during the chaotic days of privatisation in the mid-1990s found themselves up against a man whose soft-spoken manner and rimless glasses hid a prodigious energy and ambition.
Khodorkovsky came to oil via banking, seizing his chance to consolidate his holdings. He became a byword for the freewheeling tycoons of the Yeltsin era. That era is rapidly coming to an end. Now Khodorkovsky is held up as an example of the new breed of businessmen who may yet succeed in instilling a culture of honest dealing and transparency into Russia.
He is the archetype of the new, sober, responsible industrialist on whom Putin’s hopes for an end to Russia’s oligarchic culture rest.
Already Western commentators are talking of the “Khodorkovsky effect” — the transformation of cowboy outfits into efficient and competitive organisations.
Efficiency is the keyword. Yukos is run with streamlined Western discipline. Top executives, including the financial director and the head of press relations, have been imported from the West. The workforce is young — Khodorkovsky himself is only 38 — and motivated. Salaries are high. Corporate culture is strong. Aggression is valued above subservience, and dynamism above tranquillity. There is a distinctly unRussian feel to the place; the corporate headquarters in Central Moscow appear bleakly Soviet outside, but inside all is clean, computerised and tasteful. Khodorkovsky’s own office, unlike those of other Russian bosses, is austere. Yukos produces between 2 and 3 per cent of Russia’s gross domestic product.
Khodorkovsky is now estimated to be the richest man in Russia, worth about $2.4 billion (£1.7 billion), and Yukos invests millions each day in exploration, refining and marketing. He wants to know, every day, how much is spent on what. What does not pay has to be changed.
Like Branson, however, Khodorkovsky is also acutely aware of the importance of image. He is personally accessible (I have met him four times) and tackles the awkward questions — political intrigues are still never far from big business in Russia — head-on at press conferences here and abroad.
More importantly, he believes that Yukos and other big companies must accept responsibility for fostering a post-Soviet industrial culture. This starts at company level. Yukos has spent millions on housing and benefits for its workers, built sports facilities in the frontier settlements in Siberia’s marshy oilfields and sponsors, in the manner of Japanese companies, games, festivals, courses and training centres where the corporate green-and-yellow logo is prominent.
Intriguingly, however, Yukos is now beginning to take on projects that are distinctly American in their corporate patronage and distinctly Russian in their social scope. Khodorkovsky is emerging abroad as a patron of the arts, contributing the lion’s share of the money to set up the Hermitage Rooms at Somerset House and inaugurating a £10 million “Open Russia foundation” in London next December to promote understanding between Russia and the West with educational grants and student exchanges.
He has also promised Kofi Annan to support the United Nations Secretary-General’s “Global Compact” initiative on protecting cultures and the environment. At home he has set up a modern equivalent of the old Pioneer camps, so typical of Soviet days.
“Newlandia” opened five years ago and has taken 200,000 children, or “navigators” with American-style sweatshirts and baseball caps, to the shores of a reservoir for fresh air, fun and youth leadership courses.
More central to Russia’s new orientation westwards is the network of Internet training centres that Yukos now operates at 18 sites across Russia.
The aim is to make young Russians, even in the remote snowbound provinces, as skilled in Internet navigation as their Western contemporaries. What does Yukos gain from such patronage? Good public relations, of course, and approval in the Kremlin. But the philosophy is more long-term. “We want to close the gap between Russia and Moscow, and Moscow and big business. We want to train a generation that will succeed us.”
Khodorkovsky also sees a growing role for the new Union of Russian Employers, the grouping of the top industrialists who now lobby like any Western employers’ federation. They want a say, for example, in industrial policy, rail tariffs, taxes, bureaucracy and all those areas that were once the sole preserve of the Kremlin.
On taxes — now down to a flat 13 per cent — Khodorkovsky, a frequent visitor to the Kremlin, has already won a notable victory.
His next target is the reform of the bureaucracy, especially the law enforcement agencies that are still Soviet in conception and corrupt in practice.
“They see themselves still as the defenders of the Government’s interest. Today society also comprises individuals and private companies. They have rights too.”
It is hard to think that a man so driven, so insistent on the details, has time for the bigger political picture.
Most of his time is spent scheming the company’s expansion; diversification into other energy sectors such as gas and electricity generation is the priority, and cautious expansion abroad may follow later. Khodorkovsky has a well-defined vision of Yukos as an integrated energy company, breaking the electricity monopoly and spreading into byproducts and distribution.
It will mean a lot of fighting, skilled lawyers and political clout to take on the entrenched monopolies and bureaucratic lethargy.
However, Khodorkovsky already has the image of a Russian in a hurry. His rivals, at home and abroad, would do well to note that Russia can change faster than many people supposed.
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