They lied to 90 per cent of the people when they generously promised that a privatization voucher would buy two cars. Sure, an enterprising player on the financial market with access to private information and with the ability to analyse this information could turn a privatization voucher into as many as ten cars. But the promise was that everyone would be able to do it.20
They kept their eyes shut to Russia’s social conditions, while conducting privatization and ignoring its negative social consequences, coyly calling it painless, honest and fair. It’s well known what people think of that ‘great’ privatization now.21…
The election campaign of 1995–96 showed that the Russian people had already rejected liberal government. As one of the 1996 presidential campaign’s major sponsors, I, of all people, should remember quite well what a monstrous effort it took to make the Russian people ‘choose with their hearts’.22
But by the time he had grasped this, it was already much too late. The oligarchs and the liberal politicians had not only come to be seen as heartless, but incompetent too. It is not as though the young tycoon had acted like he understood what ‘a monstrous effort’ it was at the time – or maybe, we should just presume, he understood all along.
Two years after Khodorkovsky and his gang grabbed those immense oil fields that became the core of Yukos oil company, Russia itself went bankrupt. The country defaulted, the currency was devalued and the savings of the middle class decimated. The night before the default, nobody thought of informing the millions of financial victims, but Khodorkovsky was in the White House, being briefed on what shape the decree would take. Once it was all over for him, he could see the mistakes of his own Yeltsin elite with crystal clarity. He wrote:
They didn’t force themselves to think of the catastrophic consequences of the devaluation of Sberbank [Russia’s largest, state-owned savings bank] deposits. Then, it would have been possible to come up with a very simple solution — by securing deposits through government bonds that could be paid back by taxes on capital gains (or for example stocks in Russia’s best companies transferred to private ownership). But the powerful liberals didn’t want to waste their precious time; they didn’t want to exercise their grey matter.23
Did he push for that plan on the night he was there in the White House? Neither Khodorkovsky nor any of the Yukos executives were acting with a social conscience in 1998. The moment that the default struck they moved funds offshore and threatened to dilute the value of the company’s shares to zero if minority shareholders would not sell at the price they wanted. A truckload of important financial documents ended up at the bottom of a river.
This behaviour left his company notorious. Yukos was a by-word in business circles for atrocious corporate governance. In 1998 Khodorkovsky was seen as the moral equal of the other oligarchs – little better even than Berezovsky. The company had huge debts and he the reputation of a card sharp. In 1998 someone murdered the mayor of Nefteyugansk, the oil town by the Yukos fields, on Khodorkovsky’s birthday. There is a Russian mafia tradition to deliver a birthday ‘gift’ to the person who commissions a kill. Khodorkovsky was immediately suspected. But was someone trying to frame him, as the oligarch’s men claimed, with the murder in fact the work of local Chechen bandits?
The months after the crash left Khodorkovsky with two stark options. The first was to do nothing and live off the cash from exporting Yukos’s oil, but with the barrel trading at its lowest value in decades, this did not seem too attractive to an enormously ambitious man. The second option was to turn to PR, convince shareholders and investors he was reinventing his company, improving his production techniques and driving up its share price and thus his fortune. He chose the second option. The insight that had struck him was that his company was undervalued simply because it was a Russian company. So much oil would be valued at as much as ten, maybe twenty times more, if it were a Western company. This is where the drive to change Yukos began.
The rashness of Khodorkovsky, his susceptibilities to moods and changes of heart, perhaps even to acting, gripped him like a mania. He started dressing differently – out went the 1990s thick-rimmed glasses, the moustache and the dress sense that seemed so laughably Soviet. In came new-century style rimless glasses, turtleneck jumpers, jeans and an apparent zeal for fighting corruption and turning Yukos until a model company. At first, Moscow laughed. Had Khodorkovsky undergone a change of heart? Or was he playing the lead role in an elaborate, expensive, PR show? It was both. Genuine attempts were made to improve the company – but he had cottoned on that even reputations can be laundered, and that there were Western accountants, Western lawyers and image-makers all too happy to do it. He drafted in global management consultancies to rebuild the Yukos interior and began spending more and more time in London, Washington and New York, talking about his charity work.
The man who began as Komsomol’s experimental capitalist came up with a new slogan: ‘Honesty, Openness, Responsibility’. He wasn’t the only one trying to rebrand himself. The only difference was that, unlike the other oligarchs, he began to believe his own PR. Khodorkovsky began to genuinely think that he was a moral actor, a value-creator, a strategic genius – that he had ‘built’ Yukos rather than having been ‘given’ Yukos.
He had good reasons for this. Khodorkovsky had become obsessed with efficiency and was convinced of his own magnificent genius, as he had achieved nothing less than a production miracle in the part of Russia that matters most – the oil fields of western Siberia. Destructive and inept Soviet techniques had damaged the fields to such an extent that production had almost halved in the 1990s. Russia simply did not have the technology or the competence to exploit the oil that remained. It was Khodorkovsky who first decided to cut through the Russian hydrocarbons establishment and import Western advisors and techniques wholesale.
Through new fracking, flooding and pump techniques Yukos reversed the production decline in western Siberian. The old Soviet fields were losing less oil and new fields were pumping out far more effectively. The results were spectacular. The average flow rate from Khodorkovsky’s wells doubled between 1997 and 2002.24 He was at the heart of a revolution as his techniques were copied across the industry. Russia’s growth in oil production was so steep that it constituted half the growth in oil production in the whole world between 1998 and 2004.25 The country that had been exporting just 3.3 million barrels a day in 1998 was exporting over 6 million in 2005.26
And Khodorkovsky knew full well that the government couldn’t have done this. Private companies had seen production rise by two-thirds but state-controlled ones rose only by a quarter.27 Not only was Russia producing more, but what it was producing was worth more. There was now no stopping Khodorkovsky’s addiction to efficiency and booming sense of self-worth. In 1998 the country had been making only $28 billion from oil and gas – it would hit $243.6 billion by 2005.28 He felt he was the one turning Russia’s fortunes around.
In this convinced, contemptuous mood, Khodorkovsky was the first to see right through Putin’s telepopulism as pure PR, that it was all stunts not state building. Putin had done nothing to increase oil production. Khodorkovsky was the first person to realize that Russia had exited economic crisis, but was still in a governance crisis. The things that could be solved by an economic upswing were getting better, but the things that needed government competence to solve – such as corruption, terrorism and extortion – were as bad as before. When Khodorkovsky looked at the way Putin ran Russia, he saw the way that Yukos had been run ten years earlier. He saw the President as a shoddy manager.