Frontline World

Moscow - Rich in Russia, October 2003


Related Features THE STORY
Synopsis of "Rich in Russia"

HOW TO MAKE A BILLION DOLLARS
The Oligarchs

INTERVIEW WITH MIKHAIL KHODORKOVSKY
Money, Power and Politics

REPORTER'S NOTEBOOK
Examining the Young and the Restless

FACTS & STATS
Government, Population, Economy

LINKS & RESOURCES
Life in Russia Today and the Transition to Capitalism

MAP

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Interview with Mikhail Khodorkovsky: Money, Power and Politics

FRONTLINE/World reporter Sabrina Tavernise's exclusive interview with Mikhail Khodorkovsky, just weeks before his dramatic arrest, is a frank account of the billionaire's rise to power, covering everything from his account of the 1991 coup to his blunt opinions about other oligarchs and the Kremlin. Tavernise, who was also reporting for the New York Times, conducted the interview in Russian at the headquarters of Khodorkovsky's oil company, Yukos, in late September 2003. The interview was translated by Helen Grigoriev, and has been edited for length and clarity.

Editor's Note: On November 3, 2003, four days after the publication of this interview and nine days after his arrest, Khodorkovsky stepped down from his position as head of Yukos oil.

Tell us about your past, your personal past. What did your parents do?

My parents were Muscovites. They worked at the Kaliber factory. It's a factory that manufactures various measuring devices: rulers, micrometers, projectors. ... I went to this pre-school that shared a fence with the factory, and we would always climb the fence with the intent of pocketing some interesting metal things for ourselves. My parents worked there as engineers. My father was a construction engineer, and my mother was a production engineer.

In 1991, when Yeltsin stood on the tank, where were you?

I was in the White House [in Moscow]. I was an advisor to the Russian Prime Minister [at the time, who was then facing down a coup.]

Were you scared? Do you remember that feeling?

Yes, of course. I was absolutely calm during that whole situation. In these cases, I'm always calm. I was just convinced that we'd either be sent to jail or shot.

I had an uncomfortable feeling with Yeltsin's press secretary, Mr. Vashchyanov. ... He's very intelligent looking, he wears glasses, and he had a machine gun across his chest. And he is talking to me, and he turns his head to me, and he turns the gun to me too, and I just [gasps for air] because I could see that the safety device was taken off of the gun, and his finger was on the trigger. It was just a more comfortable way for him to hold it. [Laughs] Everything else was relatively calm.

Have you ever thought of leaving Russia?

During Soviet times, of course not. I was a student at the university in the department that dealt with rocket fuel. No one would have let us leave the country. But when perestroika took place, I thought about what it would be like to live someplace else. And I even tried, as I traveled, to feel what it would be like to live in a different society. I've been to Europe and it didn't work out. At one point, I even bought an apartment in England and then sold it.

Why? You didn't feel comfortable?

You know, every person has a different sense of home. Some people are more cosmopolitan; it is easier for them to travel all over the world, live in other countries. Many journalists are among those people. And others are homebodies by nature. Their home, their own circle of friends, that for them personally is more important. And I probably fit into the second category. I have to travel a lot, but relaxation to me is when I am at home.

What is the most important change in your life between 1991 and today? Do you even have enough time to brush your teeth?

There haven't been many changes in my everyday life. I'm living in the same way that I'm used to. But there is a serious lack of time. I allow myself certain things that help me make up for the lack of time. For example, I have a driver, because in a car, I either read or sleep. Catch up on sleep; especially if you consider Moscow's traffic jams, it's not so bad. And I now have the opportunity to fly on a private jet, which really allows me to save time and it allows me to be more mobile, because it's a problem for me if I have to leave home for a long time. I can even fly to United States for a day, that's important for me. That I feel is a positive part of the changes.

Ten years ago, many people said that everybody had to give bribes to do business in Russia. Since everyone took bribes, they said, how could they be judged on the basis of what was legal or legal? If it wasn't right, they said, then everyone would be in jail. How do you feel about that? Was business back then the way Americans saw it: "Russia, Mafia, bandits?" What's changed now?

You know, the business sphere in Russia was difficult, and remains complicated....each person in every moment has certain self-limitations: what he can do to reach his goals and what he can't do to reach his goals. I admit that those people that have very high limitations become saints, but they do not become entrepreneurs. And people whose bar is set too low, I don't think that they remain entrepreneurs for very long, they become criminals. And the rest depends on what limitations you choose for yourself. I made a choice for myself: I said that I will not break the law. I saw that the situation was changing, I knew how business was conducted in other countries in the world, and how it varies, but nevertheless I liked the way that open public companies conducted business. That's why I said that not only will I not break any laws, but I also will not break any widely accepted ethical principles. And if I am not sure whether something fits into that idea, I will ask. But before 1999 I did not operate like that. I did not break Russian law, but everything else wasn't my concern.

What do you mean by everything else?

Everything else is the question of ethical standards. Russian legislation allowed many things that in the West were already considered inappropriate. For example, our standards on insider information were completely different, our standards of false advertising were completely different, our standards of working with shareholders were completely different. I worked within the standards that existed in Russia.

I agree that many people have had to break or are breaking laws within the boundaries of their business that exist there and ethical conventions that exist here. I was able to avoid that, and still be successful in business.

How did you manage to avoid that?

You see, every person looks for opportunities. If he is a little bit lucky, he finds the opportunities. If he is less lucky, but is ready to break the law, then he finds other opportunities. I was able to avoid that. And that is why I'm fearlessly talking to our respected prosecution, telling them that you can show that we broke ethical standards as far as we understand them today, and that is true, and it went on until 1999. But we did not break the law.

I see you have a new office.

In the other office we had to remodel to meet our needs, we constantly had problems with our network. We use paperless technology; we do not have any paper output in the company, and it turned out that we needed a completely different technical system. But to transfer the company while we renovated the office space, and then move back, as we could in New York -- unfortunately there aren't many office buildings of that caliber available in Moscow, so we just built ourselves a new building and sold the old one.

And what is that picture behind you? [pointing to a large abstract painting on the wall]

Honestly, I don't know. I don't trust my artistic taste, so the designers that were hired to decorate did it according to their taste. My demands were only that [the whole office] would be a transformable space. ... The structure of the company is constantly changing. The composition of the necessary working groups is constantly changing. We have many divisions that are based on the project principle, which means that they are put together for each project. They need different types of space, so [we need to be able to] take it apart and put it together.

And what about at home?

At home, I'm very conservative. ... I can't stand the modern design, all those glass structures on the bottom. I like everything to be dependable, heavy, English furniture.

Can you describe your company? Has the merging [between Yukos and smaller rival Sibneft] taken place?

No, the merge has not taken place yet. we are currently in the process and we have to be done by the end of the year, and then starting January 1st, we will be operating as one unified company.

What will happen; what will the company [be] like?

The company [Yukos] will be the largest oil company in Russia, and the 4th largest in the world in oil production. It's a large Russian company, a large oil company by global standards.

... But let's not overstate the role of oil in the Russian economy. If we take Saudi Arabia for example, there 90% of the economy is tied up in oil. In Russia the oil fraction of the economy is around 20%, and that's oil and natural gas combined....

... Our company produces/will be producing somewhere around 5% of the gross national product. That's a lot for one company, but it's less than, for example, the share of Nokia [cellphone company] in Finland. It's a large Russian company, [and] large as an oil company by global standards.

...

What is happening with your company right now?

Today there is an attack going on by the government that has been motivated by certain political powers. This attack is not targeting the company, but targeting very specific people. Without a doubt, today the shareholders of Yukos are becoming victims of the attack; some staff members are becoming victims. The targets of the attack are the shareholders and the management of the MENATEP Group that is in turn a shareholder of the company Yukos.

Why is the government attacking specific people within a specific company? What do they want with them?

We, without a doubt, happen to be very influential people in the country. And we have our own views on development of our country; it's development according to the democratic model. There is a section of the government that supports that model, and there is a section of the government that does not support that model.

There is consensus in place on the issue of property. Everyone thinks that property ought to be private. Some of the people think that private property has to coincide with democracy, and some of the people think that private property can exist, but we can hold off on democracy. The company itself has nothing to do with it, the company itself is a matter of private property, and there is a consensus on that issue. But the people, the shareholders, they are fairly influential, and they have the opportunities to support one or another political power.... I have announced that I support two political parties, liberal-democratic in their nature: the Union of Right Forces, and Yabloko. And that's a problem.

So they think that you are too influential?

We are fairly influential, and we have the opportunities to help those that are choosing an alternate development route. So it is not a question of my personal involvement in politics or the question of personal political involvement by the employees or shareholders of the company. It's the question of our ability and our desire as individuals to support the democratic developments in our country. Not everyone is okay with that. There are people in our society who think that it's normal, and others who think that we should be denied our civil rights. I don't agree with that. I think that that property and civil rights are not only equal in merit, but civil rights are even more important than property.

Would you describe Russia as being between two models?

Everything is very simple and very clear. In our country in 1996, we had presidential elections, where we elected president Yeltsin. And in that moment we had a choice between the path of development that was taken by France, America, and other developed western countries. That was one way, and another way that was offered to us was the path of development taken by the Soviet Union, China prior to reforms, and so on. It was a clear alternative. The people chose the option that would follow the development in the western societies. We began moving in that direction, and that other alternative no longer exists -- no one is asking us to go back to the Soviet Union.

But now we're presented with a different choice: are we choosing the model of, let's say, the United States, or the model of Venezuela or Guatemala? ...

Some people think that Russia should follow the example of Guatemala, where there is private property, but at the same time all the political life is in the hands of the government. Some people think, and I'm among them, that in modern society it is impossible, if we want to be a developed country, to say that there should be private property but it's not important what happens to democracy. These are not separate issues. A country cannot be wealthy if it is not democratic.

Among Russians there is some criticism about privatization, and the deals that were made during the early 1990's. How would you respond to those people, the screaming grandma, or babushka, on the street corner who insults you? She was not able to make any deals...

To the grandmother I say that in 1990-95, you stood in line at the gas station, if you owned a vehicle, and you did not receive any benefits from the oil companies' budget. Oil companies did not pay taxes [then]. Today in 2003, we produce fifty percent more oil than we did in 1996, we pay five times more in taxes, out of which the salaries for teachers and doctors are paid, and you are not waiting in line at the gas station. That's what I tell the grandmother.

But this is what I'll tell an American investor who doubts whether or not the shares were rightfully obtained: I'll tell him that the government, for completely understandable reasons, made the decision to sell off a large industry because it did not pay taxes. ... This was on the brink of the 1996 elections, when everyone was certain the Communists were going to win. The Communists firmly announced that any companies that were sold off would be nationalized without payment. So you understand that no investor would have paid a single dollar for this company. We paid, for the first part of the company, a total of $450 million-- $150 million before the election and then $300 million after the elections.

Do you have a receipt?

Of course, of course. And that's considering that the company was $3 billion dollars in debt -- it was a huge risk. But when we bought the second part of the company in 1997, after the election, such risk didn't exist, and we paid $1.2 billion for it. That was right on the eve of the oil crisis, and there were not that many investors who wanted to buy a company in Russia.

Americans think that in ten years of democracy, the Communist Party has been the biggest threat to democracy in Russia. What do you think is the biggest threat?

The biggest threat is that we do not have a civil society, and so there are people, groups of people, who want to have the power in their hands, basically bypassing democratic procedures, by keeping the shell, but taking out the meaning. There are people who think that the country would do well with an authoritarian regime.

And who are they?

There are very many people in the government who came out of the Soviet times and have not changed. There are [also] younger politicians who think that the authoritarian way of developing is right for the country. On the one hand, it seems like there is a democracy in place, a multi-party system, and so on, but on the other hand there isn't a democracy, which means that very little depends on the expressed desires of the people. There is an impression of a [democratic] society, an independent court system, but when you look at it closely, you can see that it is not independent. A civil society, a self-governing society by the citizens does not exist.

Is that really a threat?

Of course. It's a serious threat. In Russia in the last thousand years, since the Novgorod Veche, [a popular assembly in ancient Russia] we have been taking a step towards the West. And in Russia, the West and democracy are synonymous. And then we've taken steps towards Asia..., which, for Russia, is synonymous with totalitarianism. For us, there really is a question of what we are moving towards, the West or the East. It's a traditional problem for Russia, and probably the country's most poignant. If we were to take Peter the Great for example, everyone thinks that he pushed Russia closer to the West, but in reality he, much like Ivan the Terrible, pushed it towards the East, by devaluing human life.

In the beginning of the 20th century we tried to move West...Railroad construction began in Russia, and Western entrepreneurs began to take part in the work. And then in 1917 we went back to the East again. Again human life lost all value for us. For us the West means a high value on human life, for us the West is civil rights. For us the East is the lack of civil rights, and as a result, no value on the human life. Please understand that this has nothing to do with property. Property is a separate thing; it can be decided one way or another. We're talking about whether we will have a society with civil rights or without civil rights. I don't know how serious a choice that seems to you, but for me, as a citizen of my country, it is a very serious choice.

So which direction are we moving in now, to the East or to the West?

We're moving towards solving the problem. We dealt with one issue in 1996, whether or not to have private property or not to have private property. ... And now we come to this issue. And I'm absolutely convinced that this issue will be before our citizens at the 2008 election.

Today it is impossible to say where we are going, East or West. Part of our society is moving East and part of it is moving West. Society cannot split apart, we have a unified country, we don't have any place were we can separate. So we must come to a consensus within our society. But whether it will be an authoritarian consensus or a democratic consensus cannot be said today.

As far as politics, what do you think was [exiled oligarch Boris] Berezovsky's mistake? Why is he outside the country [recently granted political asylum in Britain] and why can't he operate in Russia?

Berezovsky is the type of person who already lost interest in business. He was interested in politics, but continued to do business. And he created a lot of very difficult contradictions for himself. Then, the mistakes that he made, he made them as a politician, in my opinion. I don't want to go over them now. You can be involved in business, you can be involved in politics, but you cannot simultaneously play well on both fields. There is always a choice.

Are you involved in politics?

I'm without a doubt involved in lobbying for the interests of the company at the State Duma [parliament]. As a citizen I support one or another political power, which I talk about publicly. Myself personally, I am not involved in politics. I have not taken part in a political process. You understand that it is one thing to financially support people who have similar views, and a different thing entirely to take part in a political process yourself. One demands money, and I as a person have it; another demands time and mental energy, which I as a head of a company do not have. ...

Read more about Mikhail Khodorkovsky in "How to Make a Billion Dollars"

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