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 broken up 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 "unlawful 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 nationalizing 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: "[A]rticle 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 from] 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.
Formation and early years
The company was created on 15 April 1993 by Resolution No. 354 of the Russian government, following Presidential Decree No. 1403 (17 November 1992), which had directed the government to transfer its directly owned oil and gas operations into separate companies, in preparation for privatization, with the aim of developing the oil and gas sector in Russia.
OAO Yukos Oil Company, known as Yukos (ЮКОС) was one of the companies so formed, on 12 May 1993. Its initial assets included:
Yuganskneftegaz ("Yugansk Oil and Gas": Юганскнефтегаз), a West Siberian oil extraction operation based in Nefteyugansk, part of the Khanty-Mansi Autonomous Okrug and Tyumen Oblast ("district"); Kuybyshevnefteorgsintez ("Kuybyshev Oil and Organic Synthesis": КуйбышевнефтеОргСинтез), founded in 1975–1976, comprising three Samara Oblast oil refineries in Kuybyshev (now known as Samara), Novokuybyshevsk and Syzran, and various other oil-related operations.
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.
Privatization (1995) During 1995 and 1996, with Russia in economic difficulty, many large state-owned industrial businesses were privatized in a second round of reorganization ("Loans for shares"), in which major state assets were sold off through – and often to – Russian commercial banks in a series of rigged auctions whose participants were limited to favored bidders with political connections.Privatization in Transition Economies: The Ongoing Story – ed. Ira W. Lieberman, Daniel J. Kopf, p. 112 This acquisition of valuable state industrial enterprises for far less than their open market value also marked the emergence of a wave of Russian oligarchs – immensely wealthy Russian businessmen with powerful political connections, who held a dominant position in Russian business and politics for some time. (The first wave of wealthy individuals was bankingAfter Putin's Russia: Past Imperfect, Future Uncertain, ed. Stephen K. Wegren, Dale R. Herspring, chapter by Peter Rutland, p.163: " Most of the first wave of oligarchs was concentrated in the banking sector. [...] Banking was a lucrative business since the banks served as intermediaries reaping profits from Russia’s booming natural resource exports, exploiting the gap between the ruble-denominated domestic economy and the dollar-denominated foreign trade." and exportCORPORATE CONTROL AND GOVERNANCE PRACTICES IN RUSSIA – draft paper by Yuko Iji, University College, London, CENTRE FOR THE STUDY OF ECONOMIC & SOCIAL CHANGE IN EUROPE: SCHOOL OF SLAVONIC & EAST EUROPEAN STUDIES, June 2003, : "Besides, since the dismantling of the state monopoly over foreign trade in 1988, those who had access began to sell abroad practically anything exportable.", citing Gustafson 1999 (27): "Anyone who could acquire [saleable assets] at controlled domestic prices, and then sell them abroad for dollars, was rich overnight". driven following perestroika in the 1980s.)
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 privatization] 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),https://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 1995Menatep 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
Post-privatization (1996 to 2003)
The initial period of "oligarchic privatization" was characterized by ruthlessness and bloodshed, with those having power sometimes compared to 19th century robber barons, and Yukos was no exception. For example, the former Security Chief of Yukos, Alexei Pichugin, was convicted on multiple counts of murder and attempted murder, including (along with Yukos 1st Vice President Nevzlin) the murder of Vladimir Petukhov, mayor of the Yugansk oil province in Khanty-Mansi Autonomous Okrug and a vehement opponent of Yukos, on Khodorkovsky's birthday in 1998. Initially, Yukos, like most other Russian energy companies, was badly affected by the economic recession of the 1990s; subsequent to acquiring Yukos, accusations were made of other parties being squeezed out, and Yukos became formally owned by Rosprom, Menatep's holding company. In the late 1990s Russia was badly affected by a deepening of the economic crisis, in the course of which Bank Menatep became insolvent.
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.