Watching Government: Outlook for Yukos

Yukos Oil Corp., the second largest oil and gas firm in Russia and one of the largest in the world, has ambitious plans to compete on a global scale. Yukos Chairman Mikhail Khodorkovsky spoke of the company's problems and progress last week in Washington, D.C. The 33-year old Russian capitalist earlier this year shifted his attention from Menatep Bank to run its Yukos subsidiary.

May 12, 1997

3 min read

Yukos Oil Corp., the second largest oil and gas firm in Russia and one of the largest in the world, has ambitious plans to compete on a global scale.

Yukos Chairman Mikhail Khodorkovsky spoke of the company's problems and progress last week in Washington, D.C. The 33-year old Russian capitalist earlier this year shifted his attention from Menatep Bank to run its Yukos subsidiary.

He said Yukos achieved true vertical integration in 1996 and will complete its restructuring by Jan. 1, adopting Western accounting and management methods. He said those changes will enable Yukos "to turn our attention to global competition."

He said Yukos' large outstanding debt is being overcome, and the government is restructuring payment of back taxes.

Another headache has been Yukos' "significant" environmental problems, but the firm has drafted a 5-year plan to resolve them. That includes replacing 500 km of pipeline this year and 700 km/year in the future.

Khodorkovsky was visiting the U.S. to seek partners and financial resources: "We intend to acquire new oil fields, rebuild our refineries by 2003, and acquire existing petrochemical plants or build new ones."

Priobskoye field

Khodorkovsky also plans to talk with Amoco Corp. about renegotiating their joint project to develop Priobskoye oil field, which has 700 million metric tons of reserves.

He explained Yukos' predecessor, a state-owned company, sought Amoco's help to develop the western Siberia field, and while that expertise was still wanted, it should be "under terms and conditions that will be advantageous to our shareholders as well."

Asked about corruption in Russia, Khodorkovsky said most of it is at the small-company level. But he complained of government "blackmail," requirements that companies build facilities for communities or fund local social programs.

For instance, he said Yukos has built 300 km of roads that the public uses, but the company has to pay fees to drive on them.

He estimated that such nontax payments and fees cost Yukos $100 million/year. But he observed, "Every large American company has to make its good corporate citizen social payments too."

Khodorkovsky said Russian firms need U.S. partners today more than ever. "American firms were the first to enter the Russian market, but then they disappeared into the woodwork."

But he said those partners should not just look at Russia "as a source of raw materials" and Russian firms as subsidiaries.

New minister

Khodorkovsky had little to say about Boris Nemtsov's appointment as Energy Minister.

Nemtsov was formerly first deputy prime minister, with the job of speeding reforms of the gas, electric, and railroad monopolies (OGJ, Apr. 21, 1997, p. 32).

Khodorkovsky said, "He's going to be spending most of his efforts working on Gazprom and the electric utility industry. At Yukos, we're not going to be having a minister breathing down our necks."

He added that reform of Russian monopolies and utilities is "absolutely necessary" for the economic health of the country.