The Moscow Times: The Oil Town That Won't Forget Yukos
NEFTEYUGANSK, Khanty-Mansiisk Autonomous District -- The headquarters of Yuganskneftegaz have been repainted and the logo of state-owned Rosneft now appears everywhere. There's a new gleaming gold plaque for the office of Rosneft president Sergei Bogdanchikov, and the boardroom is festooned with the white, black and gold corporate flags of Rosneft, the victor in a bitter war against Yugansk's previous owner, Mikhail Khodorkovsky.
As Rosneft tries to erase the traces of Khodorkovsky's shattered Yukos empire, it is stamping its own mark on Nefteyugansk, a Soviet-era settlement of 100,000 people whose outlying oil riches have made it a battleground in the years of perestroika, privatization and, now, renationalization.
The move is not just about the acquisition of Yugansk, which was the center of Khodorkovsky's empire before he was arrested on charges of fraud and tax evasion more than two years ago. Rosneft is also getting into politics, fielding its candidate in the town's mayoral elections on Sunday.
"We understand that we need to have some kind of power in the administration," said Sergei Bouzounov, Yugansk's business manager. "We are interested in having someone we can work with."
The mayor's office, like the oil surrounding Nefteyugansk, has a way of changing hands with each new power elite in Moscow.
After Yuganskneftegaz was snapped up by Khodorkovsky's Bank Menatep in 1996, the city's mayor, Vladimir Petukhov, fought bitterly against the new management, accusing them of failing to pay taxes and preparing mass layoffs.
In June 1998, Petukhov was shot dead, and he was succeeded by a mayor who allied himself with Khodorkovsky. Now that mayor is gone, in jail on charges of fraud and abuse of office.
As Rosneft tries to secure its hold over the town's administration and cement its new position as one of the country's top oil producers in an upcoming IPO, the Kremlin is preparing to turn the spotlight onto Petukhov's murder -- an episode, it will attempt to show, that reveals Khodorkovsky's reign at Yukos in its worst colors.
On Thursday, former Yukos security chief Alexei Pichugin will go on public trial in the Moscow City Court, accused of organizing the killing of Petukhov and the 1998 murder of Valentina Korneyeva, as well as two attempts on the life of Yevgeny Rybin, managing director of East Petroleum Handelsgas, a business rival to Yukos.
Last year, Pichugin was found guilty in a separate murder trial that was held behind closed doors, but this time the authorities are opening the trial to public scrutiny. Prosecutors have said they have evidence Pichugin carried out the killings on the orders of a key Khodorkovsky lieutenant, Leonid Nevzlin.
"This was a systematic machine that had a hierarchy all of its own," said Olga Kostina, a former Khodorkovsky adviser, who accused Pichugin of being behind an attempt on her life; Pichugin was convicted of the assassination attempt in the closed trial last year. "In this trial there will be a chance to understand all of this. This time it will be an open trial."
Kostina now works as a public relations aide for the Interior Ministry.
The trial comes as the almost 3-year-long legal assault on Khodorkovsky's Yukos nears its conclusion. Yukos is now awaiting bankruptcy at the end of a case that marked a dramatic shift toward state control over the energy sector.
Chaired by deputy Kremlin chief of staff Igor Sechin, the man Khodorkovsky has accused of being the chief architect in the campaign against him, Rosneft is poised to cash in on its acquisition of Yugansk in what could be the biggest IPO in Russian history. Critics call the campaign, which has led to Khodorkovsky's incarceration in an east Siberian prison camp, politically motivated.
Pichugin's chief lawyer, Georgy Kaganer, says the Petukhov case will be nothing more than a show trial and part of a Kremlin PR drive to rebrand the Russian oil industry. "They are trying to blacken Yukos' name. They will try to show that Yukos is up to its ears in blood," he said in a recent interview.
But for Petukhov's widow, Farida, the trial is a chance, finally, to have her day in court after nearly eight years of stop-start investigations. The fact that the case has now come to trial, she says, is partly due to politics.
For her, and for other residents of Nefteyugansk, the trial has become a reckoning of sorts for the country's turbulent economic transition, as the town's oil fields moved from state to private hands, and back to the state again.
"This is not just a local case," Petukhova said in a recent interview in Kostina's Moscow office. "It shows how the system of state power works in Russia. It shows what we have lived through beginning from 1991 and how it happened."
After Petukhov was gunned down on the morning of June 26, 1998, on his daily walk to work, thousands of the town's residents took to the streets to protest his death. Residents immediately assumed Khodorkovsky was guilty, citing the mayor's tax battle with him and the fact that he was killed on Khodorkovsky's birthday.
Protesters hung banners out of the windows of the town administration that proclaimed, "Rosprom, Yukos, Menatep -- murderers! This blood is on your hands."
For many residents, Petukhov was a rare crusader. An oilman trained in the traditions of the Soviet era, he fought to defend citizens against the immense social upheaval that privatization brought. Under sweeping market reforms, the owners of major enterprises like Yugansk were freed from their social obligations, including the funding of schools and hospitals.
To make matters worse, Petukhova said, the new owners paid just a fraction of taxes they should have to the city. As the oil revenues disappeared into Menatep's vast web of trading structures, the town's budget deficit grew. Wages sometimes went unpaid for three months.
As the arrears mounted, so did Petukhov's standoff with Yukos management, as the company prepared to spin off the service companies that employed nearly 30,000 workers at Yugansk.
On May 27, a month before his death, Petukhov organized a rally outside Yugansk headquarters that disrupted the production unit's annual shareholders meeting. Then, on June 16, he wrote a letter to President Boris Yeltsin, Prime Minister Sergei Kiriyenko and State Duma leaders calling on the government to press criminal charges against Yukos for "concealing taxes in large quantities from 1996 to 1998."
In the letter, he also announced he was going on hunger strike to protest the "cynical actions and murderous politics carried out by oligarchs from Rosprom-Yukos and Bank Menatep in the Nefteyugansk region."
Ten days later, he was shot.
For MTResidents of Nefteyugansk protesting Petukhov's murder in 1998. Thousands took to the streets to demand justice.A New Breed of Oilman
Khodorkovsky and Petukhov had gotten off on the wrong foot from the start. They were from different worlds.
Soon after Bank Menatep won control over Yukos in the controversial loans-for-shares auctions, Khodorkovsky, a savvy young banker from Moscow, came to the town to learn how the drilling process worked.
Petukhov, an oilman born and bred with a doctorate in oil technology, was shocked, his widow recalled.
"This was something new: when the new owner of a major oil and gas complex had not even seen a well and how oil was extracted. This was a real eye-opener for the oilmen here," she said. "Petukhov ... told me he was frightened for the future of the town's oil industry."
"If someone does not know the worth of this work, then how can they run the oil and gas industry? What will happen to it?"
Making matters worse, she said, was that Khodorkovsky's Yukos security people were lobbying Petukhov to write off a Yukos debt of 450 billion nondenominated rubles owed to the town administration from 1995 before Menatep took over. In a complicated scheme, a large batch of oil intended for sale to pay off the taxes disappeared into the coffers of a trading firm, Rondo-S.
Yukos wanted the debt to disappear. Years later, during the tax evasion and fraud trial of Khodorkovsky and his business partner Platon Lebedev, some media close to the state, including NTV, claimed that Rondo-S belonged to a financier of Chechen rebel groups, Khozh-Akhmed Nukhayev, a former Chechen deputy prime minister under the separatist regime of Aslan Maskhadov. Prosecutors have named Nukhayev, whose whereabouts are unknown, as the organizer behind the July 2004 killing of U.S. journalist Paul Klebnikov.
Khodorkovsky's lawyer Anton Drel has denounced the media speculation, which first appeared a week after the Beslan school attack in September 2004, as part of a Kremlin campaign to smear Khodorkovsky's name.
Petukhova says that in those years she did not know anything about the firm's possible ties to Chechen rebels. "Yukos representatives came and tried to get him to write off a huge sum of money. My husband refused," she said. "This was the first reason" for the standoff, she said.
When the town's residents petitioned Yeltsin, Kiriyenko and parliamentary and regional leaders for a more thorough investigation into Petukhov's killing, and urged them to look into what happened to the money that disappeared through Rondo S, no information about any links with Nukhayev was forthcoming.
In fact, barely anything at all was forthcoming.
Petukhova said her appeals for a full investigation into her husband's murder fell on deaf ears. "For five years after the murder, I am sure there was no real investigation. There was only an investigation for show. Many employees of law enforcement agencies did not shy away from telling me, 'It's time to forget about this case.'"
"This is frightening," Petukhova said. "When law enforcement officers can say this, what kind of country are we living in?"
In those years, when the oligarchs had direct access to Yeltsin, even low-level Yukos officials liked to boast of their clout, Petukhova said.
When Petukhov was trying to force Yukos to pay more taxes, the Yukos security service in town "just laughed at us," Petukhova said. "They said, 'What world do you live in? We can have anyone we want fired in the presidential administration.'"
"They said Yukos handed out state jobs. They said they could kick the door of the presidential administration open with their foot," she said. "Such was their power."
Yukos' clout in the Yeltsin administration, Pichugin's lawyer Kaganer said, was a good reason why he thinks the current case against his client has been cooked up. "You understand the position Yukos held in Russia," he said. "If they needed to remove Petukhov from the position of mayor they could have found some reason to remove him. They didn't need to kill him."
An earlier investigation into the killing had already come up with witnesses who identified the men who pulled the trigger, Kaganer said. Now investigators have come up with different killers who will appear in the trial, he said. The previous "killers" that had been identified were, however, somehow killed, Kaganer said. He could not say what had happened to them.
Even Petukhova recognizes that the case against Pichugin might be political and that there might have been people other than those currently charged behind her husband's death. Petukhov could have made enemies on other fronts, too, as he made moves to clean up the city's market and other municipal facilities, she said.
But there was one big difference in the behavior of local criminal gangs and Yukos, she said. While the local crime bosses came to express their sympathies after the killing, from Yukos there was silence, she said.
"They didn't do anything," she said. "Khodorkovsky did not find the courage to come to me and say it was not him."
Kaganer said the fact that Yukos executives had not gone to talk to Petukhova after the killing didn't mean anything. "If you saw how Nefteyugansk was after the mayor was killed, not one person in his right mind would have gone there to express his sympathies. The whole community would have thrown themselves at you," he said.
'Brains Spilled Out'
When he heard of Petukhov's death, Khodorkovsky immediately canceled his birthday celebrations, Kaganer said.
Years later, the killing still appeared to disturb Khodorkovsky. He'd worked hard to improve his image with investors after a series of run-ins with minority shareholders in the late 1990s. From being well-known as the one of the roughest players in Russia's oil sector, by 2003 Khodorkovsky was seen as the guardian of western values and corporate governance standards.
In an interview with the Financial Times in summer 2003, published shortly after he was arrested that October, Khodorkovsky raised the matter himself. "I can say with absolute authority that no one in our company is involved in contract killings, or was involved in them in the past," Khodorkovsky told the paper. "There were no contract killings."
He recalled the day he got a phone call at 8 a.m. to tell him the mayor had been shot. "Is he alive?" the paper quoted Khodorkovsky as recalling, saying he still seemed stunned by the reply. "How could he be alive? A whole glassful of his brains has spilled out." It was an image, Khodorkovsky said, he would never forget.
Petukhova said the system Khodorkovsky helped create might have gotten out of hand. "It is hard to know the truth about what happened," she said. "There was a very terrifying security service working for Yukos. All the employees of Yugansk were frightened of it. No one talked about it there."
The security service, she said, had its tentacles in every branch of the town and regional authorities. "It was very big and highly paid. There were enough people to keep every person in town under their control, especially the top officials and businessmen," she said. "They would decide who would get a contract and who would not."
Alexei Kondaurov, a former KGB general in charge of Yukos' analytical department, said Petukhova was exaggerating. He said, however, that in those days Yukos was forced to build up its own powerful security service to defend its property against criminal gangs. "It was a battle for survival," he said. Any threat to Petukhov's life likely came from his links to criminal groups in the town, he said.
New Pressure
As the Kremlin's net has tightened around Yukos' former owners, once-stalled investigations have come back to haunt them.
Pichugin, 43, a former Federal Security Service official who ran Yukos' internal security service from 1994, is now on the receiving end of increasing state pressure. Last year, he was sentenced to 20 years in jail on charges of organizing the killing of Volgograd businessman Sergei Gorin and his wife, Olga, as well as for the attacks on Kostina and Viktor Kolesov, a senior official at Rosprom, as Menatep's financial industrial holding group was then named.
Critics say the evidence prosecutors came up with to win that case was circumstantial at best.
The bodies of the Gorins have never been found, and Pichugin's lawyers say they were staggered by their client's conviction when there was little proof the couple were actually dead. The rest of the case appeared to center on testimony from a convicted criminal, Igor Korovnikov, who said Gorin told him that if anything happened to him, Pichugin and the Yukos security service were behind it. Gorin apparently told Korovnikov him that he'd been organizing attacks on Pichugin's orders for years.
Kaganer said evidence like this would not have made it to the courts if the Russian justice system were independent. "This evidence would have been thrown out at the investigation stage," he said.
The new trial's credibility could also be undermined by reports that the prosecutors' case this time appears to hinge chiefly on the conviction won in last year's closed trial.
Pichugin's lawyers say the new charges against Pichugin are an attempt to pressure him into testifying against his old boss, Nevzlin. Nevzlin fled Russia for Israel soon after Pichugin was arrested in June 2003. Since then, prosecutors have unsuccessfully sought his extradition on charges he ordered the attacks and the killings. Nevzlin has denied all the charges.
The pressure on Pichugin has been intense, his lawyers say. "The aim is to break Pichugin so that he starts testifying. But he doesn't admit to anything."
The jailing of Khodorkovsky "is not enough for law enforcement agencies," Kondaurov said.
"They are the powers-that-be and when they don't get what they want, they are very upset."
The turnaround in Yukos' fortunes still stuns Petukhova.
The first indication the writing was on the wall for Khodorkovsky's empire came for her, she said, on Khodorkovsky's birthday in 2003. For the first time in years, she said, there was no mention of his birthday on national media. Lebedev's arrest came a few days later, on July 2.
"People here thought it was very strange. People always thought that they were running the country. ... For the first time, the myth disappeared," she said.
A tale of two oil towns
Nefteyugansk's residents have always drawn comparisons between their town and nearby Surgut, another oil town an hour's drive away across the River Ob.
In Nefteyugansk, the town was hit hard by tax minimization schemes used by Yukos, while tens of thousands of workers had their salaries slashed after their jobs were spun off to service companies.
Surgut, meanwhile -- the base for Kremlin-friendly oil company Surgutneftegaz -- was an oasis of tranquility and well-being in comparison. Taxes were paid and workers' salaries did not suffer, as Surgut's service companies remained within the oil firm.
"The fate of Surgut is completely different," said Alexander Bessonov, the head of Nefteyugansk's municipal heating enterprise who also serves as chairman of the City Duma's communal housing services committee. "The amount of oil extracted there is about the same, but the difference is huge."
On a visit to Surgut during his reelection campaign in early 2004, even President Vladimir Putin remarked on the difference between the two towns.
"Surgut and Nefteyugansk are as different as day and night," he said. "Here is an example of the businesses' attitudes toward the areas where they work." Some companies like Surgutneftegaz are good corporate citizens, while others, like Yukos, are irresponsible, he said.
For some in Nefteyugansk, the tax case against Khodorkovsky was a just response to Yukos' low tax payments in the 1990s.
Even though Khodorkovsky had been making considerable investments in social projects and improving corporate governance practices, residents still felt like conditions in Nefteyugansk were a long way behind those in Surgut.
When Rosneft president Sergei Bogdanchikov and his top production manager, Vladimir Bulba, flew into Nefteyugansk on New Year's Eve 2004 to take over Yugansk, residents hoped they would immediately raise living conditions to the level of those in Surgut.
Yet under Rosneft little has changed so far, some residents say.
"Nothing is being changed in the town even though Yugansk became a state company," Petukhova said. "It is now the most powerful production company in Rosneft's system. It was not only for this reason that it became a state company. ... We would like it to mobilize its forces to serve the Russian state."
Sergei Burov, Rosneft's candidate for mayor, who was also a senior manager at Yugansk when Yukos owned it, is promising changes for the better.
But his main rival, Galina Glukhova, a local journalist who has campaigned for justice in Petukhov's case, has been gathering support from workers discontented over the lack of changes since Rosneft took over.
The tax case against Khodorkovsky is "what Petukhov died for," Bessonov said. "He tried to make them pay taxes in full.
The trouble is, he added, that Rosneft has yet to show that it can offer a better future for the town.
"It is still minimizing wages in the service companies," Bessonov said.
Catherine Bolton, staff writer.
====
What Mrs Petukhova did not mention is that her own business was not very clear too, as by that time she was dealing the main town market with tchechen groups... so it's not so surprising that "local criminal band expressed their sympathies", they were indeed in friendly terms with the mayor's family
All the people who gave testimony against Yukos have been granted. For exemple, Kostina's husband is now a very important person in presidential administration.
