Product Code Database
OJSC "Yukos Oil Company" (, ) was an oil and gas company based in Moscow, Russia. Yukos was acquired from the Russian government by Russian oligarch Mikhail Khodorkovsky's Bank Menatep during the controversial "loans for shares" auctions of the mid 1990s. Between 1996 and 2003, Yukos became one of the largest and most successful Russian companies, producing 20% of Russia's oil output. In the 2004 Fortune 500, Yukos was ranked as the 359th largest company in the world. In October 2003, Khodorkovsky—by then the richest person in Russia and 16th richest person in the world—was arrested, and the company was forcibly liquidation for alleged unpaid taxes shortly after and declared bankrupt in August 2006. Courts in several countries later ruled that the real intent was to destroy Yukos and obtain its assets for the government, and act politically against Khodorkovsky. In 2014, the largest arbitration award in history, $50 billion (€37.2 billion), was won by Yukos' former owners against Russia. This $50 billion award by an arbitral tribunal at the Permanent Court of Arbitration was ruled invalid by the District court in The Hague in 2016, but reinstated by the Court of Appeal of the Hague in 2020.
From 2003 to 2004 onwards, the Russian government presented Yukos with a series of tax claims totaling US$27 billion (€20,1 billion). As the government froze Yukos' assets at the same time, and alternative attempts to settle by Yukos were refused, the company was unable to pay these tax demands. Between 2004 and 2007, most of Yukos's assets were seized and transferred for a fraction of their value to state-owned oil companies.
The Parliamentary Assembly of the Council of Europe condemned Russia's campaign against Yukos and its owners as manufactured for political reasons and a violation of human rights. Between 2011 and 2014 several court cases were won by the former company's management and investors against Russia or against the companies that acquired Yukos assets. The European Court of Human Rights ruled that there had been unfair use of the legal and tax system; the Arbitration Institute of the Stockholm Chamber of Commerce, an established neutral body used by Russia and the West since the 1970s for trade disputes, concluded that the government's action was an "Crime expropriation" using "illegitimate" tax bills, whose effect was intended to "destroy Yukos and gain control over its assets".
An arbitral tribunal at the Permanent Court of Arbitration in The Hague ruled unanimously upon awarding compensation of $50 billion for the company's assets, that Yukos was the target of a series of politically motivated attacks by Russian authorities that eventually led to its destruction, and that Russia had expropriated Yukos' assets in breach of the Energy Charter Treaty. "Permanent Court of Arbitration: Final Awards Issued in 3 Arbitrations Between Former Shareholders of Yukos and the Russian Federation" , pca-cpa.org. Retrieved 30 July 2014. "Court orders Russia to pay $50 billion for seizing Yukos assets", reuters.com, 28 July 2014. Retrieved 30 July 2014. The treaty does not prohibit governments seizing or nationalization commercial assets, but requires investors to be fairly compensated. Though Russia never ratified the full treaty, these clauses were still legally binding under both the treaty and Russian law until 2029. "Energy Charter Treaty: Coming up for 20 years", published 2014, by Norton Rose Fulbright partners and associates Deborah Ruff, Julia Belcher and Charles Golsong. From p.5: "Article 45 of the ECT required Russia to apply the ECT 'provisionally'. The tribunal found that Russia could not simply apply the ECT piecemeal, and that Russia had – by signing the ECT – agreed that the treaty as a whole would be applied... On 20 August 2009, Russia gave notice that it wished to withdraw the ECT... Russia is, however, still under an obligation (until 19 October 2029) to afford the investment protection under Part III of the ECT to investments made before 19 October 2009 for 20 years." Russia Rejects Energy Charter Treaty: A New Era for Investment Arbitration? , International Law Office, 22 October 2009. According to the arbitral tribunal's ruling, the primary objective of the Russian Federation was not to collect taxes but rather to bankrupt Yukos, appropriate its assets for the sole benefit of the Russian state and state-owned companies Rosneft and Gazprom, and remove Khodorkovsky from the political arena. "Hague court to rule on $50 billion Russian payout to Yukos shareholders", themoscowtimes.com. Retrieved 30 July 2014. "Yukos shareholders awarded about $50 billion USD", The New York Times; 29 July 2014.
OAO Yukos Oil Company, known as Yukos (ЮКОС) was one of the companies so formed, on 12 May 1993. Its initial assets included:
The company was named after these assets, "Yuganskneftegaz" + "KuybyshevnefteOrgSintez". The Samaraneftegaz ("Samara Oil and Gas") refinery was added to Yukos in 1995 under decree No. 864, and it later incorporated eight distribution companies in Central Russia and Siberia and assorted technical businesses. Putin and the Oligarch: The Khodorkovsky-Yukos Affair, Richard Sakwa
The first chairman and president appointed to lead Yukos, then still a government owned business, was Sergei Muravlenko (), the former General Director of Yuganskneftegaz and son of Viktor Muravlenko, a former head of the oil and gas sector during the Soviet regime.
In Putin and the Oligarch, Richard Sakwa offers a second perspective, that with oil prices varying from $16 to $25 a barrel, and great political and economic uncertainty, it was "unclear" at the time of the auction how much a company like Yukos was "actually worth", and concludes that perhaps the auctions were not wildly mispriced within the context, but regardless, they were a public relations disaster which "came to symbolize the flawed transition of as a whole".
One of the commercial banks contending for Yukos – and controversially also managing its auction – was banking group Bank Menatep, chaired by its co-founder Mikhail Khodorkovsky, a 32-year-old early import-export (1987) and banking entrepreneur (1989),http://www.themoscowtimes.com/people/article/mikhail-khodorkovsky/433772.html Profile of khodorkovsky, Moscow Times, 2011. former chairman of the Investment Fund for Assistance to the Fuel and Oil Industry (1992), former deputy minister of the Ministry of Fuel and Energy (briefly in 1993), and CEO of Rosprom, an investment and holding company created to manage Menatep's portfolio of around 30 large industrial companies (140,000 employees). Menatep became the owner of 78% of Yukos shares following a two-stage auction in December 1995 Menatep Sets Sights On Yukos Takeover, Moscow Times, 1995-11-10, by Michael Gulyayev and Khodorkovsky became its CEO, and from 1997, also its chairman. Russian oil major Yukos implements western-style reorganization, Oil & Gas Journal 06/14/1999, by Dean E. Gaddy
Yukos however recovered very quickly and, in the course of the next few years, became one of Russia's largest oil companies, one of the world's largest non-state oil companies, but more significantly, a leader in Russian corporate governance reform and corporate transparency, with Khodorkovsky being widely seen as a pro-democratic reformer who advocated for international co-operation and against corruption in Russia.
In 2001 the company paid a $500m dividend, in 2002 – $700m and in 2003 the planned dividend payout was estimated at $3 billion. Its share prices were growing quickly: in 2001 by 191%, in 2001 by 81.5%. It started international expansion, purchasing 49% shares of Transpetrol (Slovakia) and 53% shares of Mazeikiu Nafta (Lithuania). In 2002 four companies – Yukos, Lukoil, TNK and Sibneft – established a consortium to build a pipeline from Western Siberia to Murmansk.
In a marked change of direction which gained considerable United States coverage, the company and its owner came to be seen as and setting aside the dubious conduct previously associated with it in the early oligarch years. Yukos had five Americans on its board, and Khodorkovsky's charity "Open Russia" listed Henry Kissinger and Lord (Jacob) Rothschild as chairmen. In 2001 the company donated $1 million to the Library of Congress Open World Program, to aid the development of Russian leadership and rule of law, in part by funding Russian judges to visit and observe United States courts. Library of Congress Open World Program site, loc.gov. Retrieved 4 August 2014.
In a 2002 profile, Forbes described Khodorkovsky as being "vilified by the West" until quite recently, but now being seen as perhaps "the West's best friend". It stated that in Russia, "the financial free-for-all is yielding to an ethic of reinvesting in your business" with Khodorkovsky "leading the charge", with Yukos now having an American chief financial officer and publishing its previous three years of financial accounts in compliance with U.S. GAAP standards. It quoted Khodorkovsky as saying, "By now we understand how business is done in the West... I earn money in dividends and with the increase in the market capitalization of my company". At the peak of its success, Yukos was producing 20% of Russian oil—about 2% of world production; in its final year before being broken up (2003–2004), Yukos pumped 1.7 million barrels of oil a day. Yukos profile, The Washington Post, 17 July 2004. Retrieved 30 July 2014. In April 2003, Yukos agreed to a merger/takeover with Sibneft, to create the fourth largest private company in the world, although this merger became undone in the aftermath of the October 2003 arrest of its CEO.
Control of Mikhail Khodorkovsky's shares in the Russian oil giant Yukos have passed to Jacob Rothschild, 4th Baron Rothschild upon his arrest.http://www.washingtontimes.com/news/2003/nov/2/20031102-111400-3720r/ Arrested oil tycoon passed shares to banker The Washington Times, 2 November 2003. Retrieved 20 January 2015.
At the time of his arrest, Khodorkovsky was believed to be the wealthiest man in Russia and was listed by Forbes as the 16th richest person in the world, with a fortune estimated at $15 billion. His eventual sentence in 2005 was for 10 years, and attracted widespread international concern related to a perceived political motivation and lack of due process.
(The European Court of Human Rights eventually ruled that while the arrest and several other points were unlawful, European Court Rules That Khodorkovsky's Rights Were Violated, Radio Free Europe/Radio Liberty, 31 May 2011. he was not a "political prisoner" since the charges against him had been based on reasonable suspicion.)
The arrest was followed by a tax investigation into Yukos by the tax authorities, in December 2003, after which in April 2004 Yukos was issued in stages with tax claims for $27 billion, a sum that exceeded its total revenues for 2002 and 2003. At the same time, Yukos' asset freezing by the government and offers exploring other ways to settle, such as payment in stages or sale of non-core assets, were refused or ignored. In July 2004, its core asset, Yuganskneftegaz – producing 60% of the company's oil and by itself as much oil as Iraq or Libya Yukos Majority Shareholders Hit a $50 Billion Gusher , 28 July 2014, by Michael D. Goldhaber, americanlawyer.com. Retrieved 30 July 2014. and variously valued between $14.7 to $22 billion Yukos valuation, The New York Times. Retrieved 30 July 2014. and $30.4 billion Valuation of Yukos, Asia Times Online. Retrieved 30 July 2014. Valuation of Yukos, The Washington Post. Retrieved 30 July 2014. – was confiscated.
In December 2004, Yuganskneftegaz was sold for $9.35 billion in a closed-room auction of just two bidders (one of which, Gazpromneft, was subject to a US court injunction and did not enter a bid ), and an unknown front company called Baikalfinansgrup which had been registered a few days before the auction, and whose bid was financed by state-owned oil company Rosneft. Rosneft English-language website. Retrieved 30 July 2014. Rosneft acquired Baikalfinansgrup within days of the auction, at which point the tax bill was "slashed". Just over a year later Yuganskneftegaz was formally valued by Rosneft at $56 billion. On 7 February 2006, in response to a question posed by a Spanish journalist, Russian President Vladimir Putin disclosed that Rosneft had used Baikalfinansgrup as a vehicle to acquire Yuganskneftegaz to protect itself against litigation risks. Президент России Yukos was bankrupted in 2006 and liquidated in 2007.Michael Goldhaber, "A lifetime of litigation – the fall of Yukos" , legalweek.com, 9 July 2010. Retrieved 30 July 2014.
Yukos subsidiaries declared the oil they produced to be "oil-containing liquids" to avoid paying full taxes. A general crackdown on such tax evasion practices began with Putin's presidency, with numerous companies closing or purchasing their trading vehicles. A management presentation from December 2004 shows that the tax claims put the "total tax burden" for 2000, 2001, 2002, and 2003 at 67%, 105%, 111%, and 83% of the company's declared revenue during those years. As a comparison, the annual tax bill of Gazprom is about US$4 billion on 2003 revenues of US$28.867 billion. Yukos' parent company, Menatep, lobbied extensively and successfully to influence Western public opinion, retaining Margery Kraus of APCO who successfully pushed through resolutions inter alia before the US House of Representatives and the Council of Europe. According to a resolution of the Council of Europe,
On 31 October 2003, shortly after the arrest of the company's CEO, the Russian government froze ownership of 44% of the company's shares. The reason given was to prevent a group of shareholders led by Khodorkovsky from selling a large stake of the company to the US oil firm Exxon. A Yukos shareholders' meeting scheduled for 20 December 2004 was to discuss a "crisis plan." A Russian company must hold such a meeting before it can apply for bankruptcy in Russia. The Russian Government sold Yukos's main production unit, known as Yuganskneftegas, at auction on 19 December 2004 to recover some of US$28 billion in alleged tax debts, following the loss of an appeal by the firm. Bank Menatep, the company representing Khodorkovsky, promised to challenge the sale's legality in a number of countries, and to sue the buyer and any company helping to fund the deal. The expected buyer was the 38% Russian state owned company OAO Gazprom. Some European and American oil firms decided not to bid.
On 19 December 2004, the Baikalfinansgrup, an unknown company registered several days before the auction in Tver at an address where a snack bar was located, won the auction for Yukos's subsidiary Yuganskneftegas with a 260.75 billion Russian ruble ($9.4 billion) bid. According to people familiar with the auction only two bidders registered for, and were present during, the auction process: Baikalfinansgrup and Gazprom's former oil unit Gazpromneft. Accounts from the auction say that the first bid of US$8.6 billion came from Baikal. When the auctioneer asked Gazpromneft to offer its price, a representative of the company asked to make a telephone call and left the room. A few minutes earlier, the auctioneer had told participants that using a mobile phone or leaving the room was against the rules. When a Gazpromneft representative returned to the room, Baikal made a bid of US$9.3 billion. Gazpromneft never placed a bid or spoke out. Shortly after the Yuganskneftegaz auction, Rosneft, Russian state-owned oil company, acquired 100% of shares in Baikalfinansgrup. The acquisition of Yuganskneftegaz significantly increased Rosneft's profits and made it one of the largest oil companies in Russia.
By mid-December, 2004, all members of the board of Yukos, and most of the company's senior managers, had left Russia, some of them because of "fear of arrest" after being "summoned for questioning by prosecutors". According to a December 2004 Houston, Texas court filing, the CFO resides in Houston. According to a company spokeswoman the CEO resided in London, UK as of December 2004. Executives Mikhail Brudno and Vladimir Dubov fled to Israel in 2003, and were seen on 2 February 2005 in Washington, D.C. at an official function for President George W. Bush.Moscow Times, 4 February 2005, Issue 3099, p. 5
Both men were cited in an international arrest warrant regarding their involvement in the Yukos tax case. On Wednesday, 6 April 2006, the company's Executive Vice President, Vasily Aleksanyan, was arrested just six days into his new role. Yukos commented on its web site that, "We can only assume that this action against him is a direct result of his accepting a position to work to protect Yukos Oil Company and its legitimate stakeholders." The following month, it was reported that some individuals established themselves as the "New Management" of Yukos. However, this was apparently an illegal act, as Yukos "emphatically rejected" the legitimacy of the "new management" which had Vinokurov as president. According to Yukos, these individuals were "loyal to Rosneft" and had as goal the downfall of Yukos. A Yukos lawyer, Pavel Ivlev, was accused of several crimes, after which he moved to the USA. In July 2006, one week before creditors would vote if they should file for bankruptcy, Steven Theede resigned his function as he believed the outcome of this vote was already fixed and therefore this meeting would qualify as a "sham".
The total final award in damages announced by the Permanent Court of Arbitration on 18 July 2014 was some $50 billion. Russia Must Compensate Yukos Shareholders, Says European Court, The Wall Street Journal
The European Court of Human Rights ruled for Russia to pay the former owners Yukos €1.87 billion ($2.51 billion) in compensation for unfair proceedings of the tax evasion case. Yukos is asking for $333 million to cover losses incurred after its accounts were frozen plus costs and interests.
On 20 April 2016 the District Court of The Hague set aside the decisions of the PCA, ruling that it had no jurisdiction as provisional application of the ECT arbitration clause violated Russian law. In February 2020, the Court of Appeal of the Hague reversed the invalidation and held that the PCA awards were valid.
See also
Categories: Energy Companies Established In 1993, Non-renewable Resource Companies Established In 1993, Non-renewable Resource Companies Disestablished In 2007, 1993 Establishments In Russia, 2007 Disestablishments In Russia, Companies Formerly Listed On The London Stock Exchange, European Court Of Human Rights Cases Involving Russia, Companies Based In Moscow, Mikhail Khodorkovsky
|
|
