Private Empire: ExxonMobil and American Power (36 page)

On June 14, 2003, Raymond and Tillerson flew to Saint Petersburg to meet with Khodorkovsky and others, and to participate in an energy conference in Moscow. At the conference, Khodorkovsky presented a lecture entitled “The Future Strategic Global Role of the Russian Oil Industry” in which he seemed to speak directly to Lee Raymond’s worries about whether a deal with Yukos would be secure. “The rules of the game are being established,” one of his slides declared. “We can now say that the Russian tax system as a whole has indeed stabilized and the interest that our Western colleagues now have in the stability of this system—since they are now playing on a level playing field, the same rules of the game as we are—give us confidence that this stability will last for quite a long time.”
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Raymond talked again with Khodorkovsky. They both flew to Beaver Creek, Colorado, for the annual off-the-record World Forum staged by the American Enterprise Institute, the conservative Washington think tank where Raymond served on the board of directors and where Lynne Cheney, the vice president’s wife, had long worked on public policy matters. The Beaver Creek conference convened on June 19. Vice President Cheney flew out to attend a dinner of about a dozen people where Khodorkovsky was also present.

Raymond and the Yukos chairman held long discussions on the sidelines of the conference about ExxonMobil’s proposed purchase. The vision conceived around President Bush’s fire pit almost two years before seemed at last within reach.

The biggest sticking point for ExxonMobil remained whether Putin would give permission for the corporation eventually to take a majority stake in Yukos. That would be a major break with Russian precedent, a signal of a new era. Khodorkovsky and his team promised Raymond and Tillerson that they would lobby the Russian government. But they could not deliver the Kremlin’s permission up front. ExxonMobil should buy a minority stake first, and win Putin’s permission later.

“I’m never going to do that,” Raymond told the Yukos team. “I would need to have assurance from the government at the beginning.”

“This is not the right time to talk to the Russian government,” Khodorkovsky said.

Khodorkovsky was fencing through the negotiation—and talking simultaneously with David J. O’Reilly, the Irish-born chief executive of Chevron. It was far from clear who was gaming whom.
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T
he Kremlin’s clan of “siloviki,” or security men, surrounded Vladimir Putin. The siloviki were a mysterious network of former K.G.B. and military led informally by former Interior ministry officers and a former military interpreter named Igor Sechin, Putin’s deputy chief of staff. The siloviki formed Putin’s base at the Kremlin, and yet the president also continued to speak and sometimes act in public as if he intended to transform Russia into a European democracy. “Putin thinks you can square the circle between capitalism and authoritarianism,” one of Khodorkovsky’s senior advisers at Yukos told an American visitor on July 1, 2003. “But you can’t.” The factionalism among ex-K.G.B. and other security men at the heart of Russian business and politics distorted decision making.

Yukos had moved into a new high-rise that spring; Misamore and his colleagues now worked in a cool, spartan, modern setting. The only way forward, Khodorkovsky had concluded, was to opt for “an American model” for Yukos, the colleague recounted in his fluorescent-lit office that July afternoon. True, there were those inside Putin’s Kremlin who would resist. “It’s a very real conflict,” the Yukos official said. “It’s not public yet.”
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Other oligarchs of Khodorkovsky’s ilk—Vladimir Guzinsky and Boris Berezovsky, among them—had already been served with arrest warrants, the latter’s earlier in 2003. The next morning, Russian authorities arrested Platon Lebedev, the chairman of Menatep and a major Yukos investor, on charges of defrauding Russia in a 1994 privatization deal. Khodorkovsky, too, was summoned for questioning, but released. The Yukos chief was on notice, but he plunged ahead.

The American embassy in Moscow cabled Washington to report that the detentions of Yukos leaders were a serious development, but one that would likely blow over: “Most analysts interpret the [government of Russia’s] actions as a warning to Khodorkovsky to reduce his high-profile involvement in politics, which has included significant contributions to political parties and speaking publicly of the need to ensure that the upcoming elections are successful in producing a Duma that will pursue the reforms he favors. . . . Most analysts believe Yukos and the Kremlin will step back and quietly resolve their differences, at least in the short term.”
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T
he Bush administration’s energy diplomacy barreled ahead as well. In September 2003, Don Evans led a delegation of American energy executives to tour Russia in connection with yet another U.S.-Russian energy policy summit. Putin traveled to New York and celebrated the opening of a gas station in Manhattan owned by the Russian firm Lukoil, to demonstrate that Russian companies were investing in American markets, too.

Richard Grasso, then the chief executive of the New York Stock Exchange, invited about twenty American business leaders to meet with the Russian president while he was in New York, inside the exchange’s ornate headquarters at 11 Wall Street. Lee Raymond flew in.

After the general roundtable session with the American executives, Raymond and Putin met separately in private. The ExxonMobil negotiating team had decided that it would be best to find out directly from Putin whether the Russian president would be prepared to allow ExxonMobil to eventually acquire a majority stake in Yukos.

Raymond had told Khodorkovsky that he intended to speak directly with Putin about this; Khodorkovsky had discouraged him. The ExxonMobil team interpreted Khodorkovsky’s warning as only a negotiating tactic, designed to maintain Yukos’s leverage as the exclusive source of communication with the Russian government about the proposed deal.

Seated in a stock exchange conference room, Raymond told Putin about the negotiations with Yukos. He explained that if ExxonMobil were to make an investment, it would do so only if there was an agreement in advance that the American corporation could eventually take majority control.

ExxonMobil didn’t necessarily need to own all of Yukos, Raymond continued; if Russia wanted enough local ownership so that the company could be listed on a Russian stock exchange that would be okay. But ExxonMobil required a pathway to at least 51 percent ownership.

“You can basically decide how you want the other forty-nine percent,” Raymond told Putin, according to an account of the meeting later briefed to ExxonMobil executives. “Do you want the government to own it? Do you want it to be listed on an exchange? But before I get started, I need to have an understanding of our ability to get to fifty-one percent.”

It turned into a lengthy conversation. Putin talked expansively about the choices he faced in building oil pipelines to China, to feed that economy’s thirst for energy. He put a piece of paper on the table, sketched a map on it, and started drawing lines showing possible pipeline routes. He talked about whether a pipeline should cross to China above or below the Aral Sea. They also talked about coal—it turned out that Putin had studied coal as a graduate student.

As to ExxonMobil’s proposition, Putin asked Raymond, “If you have fifty-one percent, that means if I want to have Yukos do something, I’m going to have to come and talk to you?”

“Yeah, that’s not so awful,” Raymond answered. “That’s true in a lot of places in the world.”

“I’m not prepared to answer that today,” Putin said.

“I’m not asking you to answer that today,” Raymond told him. “You need to talk to your people.”
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K
hodorkovsky had also kept up his talks with Chevron, alongside those with ExxonMobil. The negotiations involved price and shareholding percentages, among other issues. As Bruce Misamore understood the terms, the discussions with Chevron involved some cross-ownership, whereby Yukos might acquire an interest in Chevron entities. With ExxonMobil, the terms under discussion were more one-sided, with ExxonMobil proposing straight up to buy an interest in Yukos.

Khodorkovsky asked Misamore which of the two American companies, Chevron or ExxonMobil, he would recommend as a partner. Misamore said that he felt Yukos’s style of operations “was far more analogous to Chevron.” It was more of a “laid-back culture.” Also, if they took on Chevron as a partner it would be “more of a mutual learning concept.” With ExxonMobil, by contrast, it “was going to be much more of a ‘We know what we are doing, we are going to tell you how to do it’ type of an approach.”
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After the meeting with Putin in New York, according to a former senior ExxonMobil executive, “Raymond spoke quite optimistically about what he thought was going to happen.”
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Lee Raymond’s remarks about what Russia would have to do to satisfy ExxonMobil may have grated on Putin, however. “The report that we got back later was that Putin perceived him as just totally arrogant and far too aggressive,” Misamore recalled. “And he just really was totally turned off by Lee Raymond—this big U.S. industrialist coming, and his arrogance, and telling the president of a country how things are going to be, almost. . . . Putin just was totally turned off by the guy—that was the report we got.”
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On September 1, 2003, BP announced a partnership with a Russian firm to jointly hold oil assets as a new entity called TNK-BP. The deal was complicated, but it effectively transformed TNK-BP into Russia’s third- largest oil company, with a London-based private corporation as a major shareholder.

From Washington, Leonard Coburn, who was at the Department of Energy monitoring the Raymond-Putin talks, assessed that “Putin was a little scared” about what an ExxonMobil purchase of Yukos “would mean for him.”
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Here was an American-headquartered oil giant obviously tied to the Bush administration proposing to follow BP into a strategic Russian industry—the primary source of Russia’s national wealth.

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hodorkovsky’s private chartered jet pulled into a fueling terminal at the airport in Novosibirsk, in Siberia, in the early hours of October 25, 2003. The Yukos chairman was en route to inspect an oil field; he planned to gas up his plane and take off again. Masked agents in camouflage dress from the F.S.B., the successor to the K.G.B., stormed aboard in the darkness, their guns drawn. They grabbed Khodorkovsky and placed him under arrest. They flew him to Moscow, where prosecutors charged him with six counts of personal income tax evasion, overseeing corporate tax evasion, document forgery, theft, and other crimes.

The Prosecutor General’s Office announced that Khodorkovsky’s alleged crimes had cost Russia at least $1 billion in lost revenue. Khodorkovsky’s spokesman at Yukos called the accusations “absurd” and said the “brute force” used to arrest the chairman had been “humiliating for the whole Russia law enforcement system” in the eyes of the world.
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The U.S. embassy in Moscow judged that Khodorkovsy’s arrest “almost certainly must have been done with Putin’s implicit or explicit approval,” and it showed “that the authorities may want not only to humble Khodorkovsky but to destroy him and even drive him out of the country.” Vershbow urged the White House to take action.

“The timing of the latest investigations . . . amid rampant speculation of an imminent deal with ExxonMobil or ChevronTexaco, and immediately following Putin’s U.S. visit—does not appear coincidental,” the ambassador wrote in late October. “Khodorkovsky has refused to back down from the start, and for a while thought that he had beaten back his persecutors. . . . He was wrong.”
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Less than eight weeks after their meeting at the New York Stock Exchange, Vladimir Putin had given Lee Raymond his answer. Why did Putin authorize Khodorkovsky’s arrest? The latter’s maneuvering to buy allies in the Duma in advance of parliamentary elections scheduled for December 2003 was probably the biggest factor. “There was clear information that Yukos supported candidates who could have formed a real, sizable faction,” Milov recalled. “Putin is a person who is very influenced by these threats.” The TNK-BP merger announcement on September 1, followed almost immediately by Raymond’s discussion with Putin at the New York Stock Exchange, in which he sought a path to majority control, may also have inflamed Khodorkovsky’s rivals at the Kremlin. Khodorkovsky was negotiating with Chevron, too, the siloviki knew. “I saw these notes saying, ‘We might be losing our oil industry to foreigners in a couple of months completely,’” Milov said. “It was a kind of scare like that. This factor was involved. I wouldn’t say it was the ultimate trigger, because this is a very complex story. . . . It was a competition for influence in the country, for control over the country.”
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R
aymond spoke placidly in public about Khodorkovsky’s downfall. “Everyone ought to take a deep breath,” he said after the arrest. “Rome wasn’t built in a day. ExxonMobil wasn’t built in a day. This is a long-term industry.” He conceded that ExxonMobil had been interested in Yukos and had engaged in talks, but as to why it had fallen apart, “There are some things there I’m not privy to, in terms of the Putin-Khodorkovsky relationship. You know, I’ve got enough problems.”
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