“I never thought the authorities would be so stubborn”

December 19 is the scheduled date for the auction for 77 percent shares of Yuganskneftegaz, YUKOS main oil producer. The next day YUKOS will hold a shareholders’ meeting, where it will be deciding whether to terminate YUKOS by announcing bankruptcy or liquidation. Chairman of the YUKOS Board Viktor Gerashchenko told Vlast weekly analytical reporter Petr Sapozhnikov why it all could not have been avoided.

“I told Steven Theede: don’t get upset, they haven't called you not because they don’t trust you, but because it is more convenient for them.”


- When you went to YUKOS as board chairman, you thought you’d be able to convince the authorities to save the company. When did you realize it would not be possible?

YUKOS managers offered to me to join the board of directors in the spring. I knew from the media that the tax agency was investigating YUKOS. The opinion at the time was the following: the case had legal complications, but it was wrong for the state to charge the company with tax evasion. In general the taxes were paid, and the tax inspection approved YUKOS’ declarations never making any comments. Auditors, who were also supposed to watch for correct interpretation of the accounting rules by the company, did not have any claims either. This is not their main responsibility, but they must make comments if the company does not pay taxes correctly because of incorrect bookkeeping.

That is why I was hoping we could use normal logic to prove that claims to YUKOS were groundless. Sometimes it is hard to prove anything in our society, but in this case it was assumed that YUKOS violations were not major. The company simply used the opportunity, allowed by the law, to optimize taxes. Such opportunities do exist in our country, as well as any other country with a developed market. Tax loopholes exist everywhere in the world, and there are even special consultant agencies, which counsel the companies on how to pay less tax.

However, I never thought the state would become so stubborn. Especially after its principle shareholder (Mikhail Khodorkovsky – Vlast) made an unambiguous suggestion that it was willing to pass his shares to the company’s management for their subsequent sale on an auction, or by negotiations with the government to be used as payment for tax claims.

Three weeks after I came to work for YUKOS (in the middle of July – Vlast) I sent a letter to Putin, where I mentioned the role of the company for the Russian economy and explained that YUKOS was willing to fulfill all court orders, in spite of our disagreement with them and court dispute over them. At the end of July we held our first press conference, where we announced that the state’s constant avoiding of contact, no matter the level, made us wonder what purposes were followed by the government. Only after that YUKOS leaders were able to meet with Viktor Khristenko (minister of Industry and Energy – Vlast) and his closest assistants.

- Who represented YUKOS at the meeting?

Yury Beilin (YUKOS Deputy CEO - Vlast) and Vladimir Trushin (first vice-president of YUKOS-Moscow – Vlast). I told Steven Theede: don’t get offended, they haven’t called you not because they don’t trust you, but simply because that was more convenient for them. It could be because of certain complications with translation, or because it’s easier to talk in a closed circle, where everybody is free to understand what they wish.

So this is what we told them: you must understand that we are currently in the middle of harvest season: we supply oil products to 40 regions, and governors are constantly talk to us about it making sure we will fulfill our side of the agreement. Also 55 percent of air forces were dependent on our supply. We had a contract signed with China. But in this situation we had to pay current taxes and to fulfill the court rulings, and we assumed there would be more claims from the tax agencies. So this is in short what we said to convey the YUKOS’ point of view.

“Realizaiton of Yuganskneftegaz shares is illegal.”

- Is this the extent of YUKOS’ interaction with the state?

-We had maintained a continual work dialogue with them from the very moment the court officers came to us. We also have kept in contact with the Russian Railroads, RAO UES, and with Shoigu (head of Emergency Ministry Sergey Shoigu – Vlast). The Railroads demanded monthly payments, so we agreed to pay them every week, but would not go into a debit balance. We also told the officers that we had to continue making certain payments in order to keep up the production – if oil production stopped we would not be able to pay tax arrears. So they realized that a company’s activities cannot be stopped with just one decision. None of them wanted to be the boy, who threw a rock from the top of the mountain and caused an avalanche. Nobody wanted to be blamed for the collapse of YUKOS.

- Nobody is going to destroy YUKOS, but the state made the decision to seize Yuganskneftegaz in order to sell it. Why could not they have arrested and sold YUKOS’ control shareholding, like Khodorkovsky was suggesting?

We were told that major foreign oil companies were interested in purchasing not only Yuganskneftegaz, but all of YUKOS. Yuganskneftegaz sale is illegal, because it is the main producing asset of the company, producing 62-63 percent of YUKOS oil, and according to the law it must be sold last. YUKOS has other assets, for instance, 20 percent of Sibneft shares, not connected to YukosSibneft. Now they are negotiating with Sibneft on dividing YukosSibneft again. At first they were really active, but then Sibneft was told not to hurry giving YUKOS the $3billion, since they may not have to do it at all, depending on the outcome of the whole situation.

Aleksandr Temerko (head vice-president of YUKOS-Moscow – Vlast) participated in the negotiations with Sibneft. He knows the details better than anybody in the YUKOS current leadership. He is also under a lot of pressure - just went through a surgery in Switzerland, or was it England, I can’t remember?

Let me repeat myself, realization of Yuganskneftegaz is illegal. That is why any other foreign purchaser would like to eliminate any risks from the direction of YUKOS and its shareholders, both majority and minority. The minority shareholders are actually in a better position because they may address their own national arbitration courts, rather than our courts, known for justice. Not only the Russian lawyers, who work for foreign companies in Russia, but many law firms in the West have been waiting like a pack of hounds to jump at filing cases for minority shareholders after the auction of Yuganskneftegaz. I think the government has underestimated this fact.

So, of course, any purchaser, especially if he holds assets outside Russia, will encounter problems on his own territory after this sale.

- Do you think the whole situation with the auction is somewhat strange?

There is an interesting moment in this auction – it is scheduled for Sunday, which is very strange. But I think that it is partly connected to the fact that earlier it was announced about YUKOS shareholders’ special meeting to be held on December 20. At first the anti crisis management plan was supposed to be the main discussion topic and only after that the issue of self-liquidation or announcement of its bankruptcy. If the results of the auction for some reason are not announced there will be no need to hold the shareholders’ meeting. After the auction was scheduled, we decided that there was no need to discuss ways to save the company. Without the auction results it is impossible to make the decision on YUKOS bankruptcy or liquidation. Otherwise it will be a violation of the law on premature bankruptcy.”

- What has she got to do with it? She has children aged 3 and 6, and elderly parents. Where will she run?

- If Yuganskneftegaz is sold to Gazprom on December 19, will it encounter problems abroad?

Of course, Gazprom holds assets outside Russia as well. I attended the European Banking Congress at the end of November, and my old German colleagues told me that if Gazprom wins, it may encounter legal claims of different kinds; at least it would be risky for the companies who have assets in Germany. I is up to the government, not the purchaser, to decide, whether to sell or not to sell Yuganskneftegaz. But the purchaser is also under a risk. This is not a purchase of stolen property, of course, however it is a purchase of property, which was not supposed to be sold.

The likely purchaser of Yuganskneftegaz is not Gazprom, but Gazpromneft, which supposedly has no assets abroad. There are certain obstacles of legal character, that is why I think that YUKOS’ legal department is being weakened, so it could not adequately solve its problems before and after the auction. They started with Dmitry Gololobov (head of YUKOS legal department, currently abroad; the General Prosecutor’s Office has pressed charges against him in his absence – Vlast), now they have taken after his deputies. They have detained Svetlana Bakhmina (on December 8 – Vlast) and it is not clear when she will be set free. What has she got to do with it? She has children aged 3 and 6, and elderly parents. Where has she got to run? If she had that in mind, she would have run away long time ago. They could have taken away her passport, or she could have signed an undertaking not to leave the country, but it was not necessary for her to be detained.

- A word about lawyers: how do you communicate with Mikhail Khodorkovsky? Do you tell his lawyers what you think and then wait for an answer?

We do exchange information. We inform him about our problems and how we intend to solve them, asking for his opinion as YUKOS principle shareholder. And he tells us his point of view.

- When do you think he will be set free? After there is nothing left of YUKOS?

All I can say is it’s up to the court to decide that. A certain term will be determined. And it is impossible to bring the company to where it’s worth nothing. However, I think that majority shareholders must have some means which will allow them to file court cases, and not necessarily in our country. Tehrefore this is a case, which will smell for a long time. And one thing I cannot understand here is the absence of a reasonable dialogue. They have got giddy because of their success.

- The YUKOS case has already caused a significant outflow of the capital from Russia. Now tax claims have been presented to other companies too, VimpelCom, for instance. What are the chances that other companies will repeat the fate of YUKOS?

In this situation it is not possible to stop on YUKOS. It is no longer possible to punish it and to say to the rest: you are good guys, we had only one who was bad.’ This is like at school when a whole class skips lessons, but only student, usually the most active, is punished, so then the rest are forgiven. I think new cases will appear.

The time I spent working for YUKOS left a very interesting affect on my life.

- How much longer will you be working for YUKOS?

One more special shareholders meeting has been scheduled for January 13. The foreign members of the board have given up on the future of the company and have raised the issue of premature termination of the board’s responsibility. Since it was elected by cumulative voting, it can resign only as a whole, not one person at a time. We will see what happens next.

- Had you known how things will turn out, would you have agreed to work for YUKOS?

It has never been an issue for me to find a calm stable place to work before I pass into the other world. Because one day we will all end up there, and I would like to have it like the song says: “If I die, then at once; if I am wounded then a little.” However, I realized that there was nothing to do at the Duma, where I worked before YUKOS, with its “constitutional majority.” So then I decided it would be better to join YUKOS than stay at the Duma. I think the time I worked for YUKOS left a very interesting affect on my life.

- What will you do next?

If the company shuts down, then, first of all, I am entitled to an old age pension of 2200 rubles, then, I am also entitled to a state pension, which the State Bank still has not settled. Therefore, I will have more time to demand a decision on YUKOS – maybe it will be possible to get the president involved, although he has issued a decree, which is being fulfilled.

- You have many opportunities, and you will likely receive many of offers.

“Of course, I will. But I can say that the current situation causes many doubts regarding how things will change in the next few years. So if I were involved in business, I would like to be independent from certain government structures. Of course, normal relations should always be held with the local administration and the tax agencies, and even with road patrol, but the effectiveness of the business should not suffer from those relations.

(Kommersant Vlast', 13.12.2004)