Yukos may no longer exist, but it’s shareholders do. And they want the Russian government to give them their money back. All $100 billion of it.

Yukos’ angry shareholders have given up on the Russian legal system, and decided to take advantage of the Energy Charter Treaty, which came into force in 1998. The Treaty specifically notes that companies cannot be nationalised without compensating its owners and goes on to impose legally binding arbitration on signatory states.

There’s just one problem – no one is quite sure whether arbitration applies to all of the states who have signed the treaty, or just those who have actually ratified the treaty. And Russia being Russia, of course, has yet to ratify the treaty.

The Telegraph outlines the various arguments for and against:

So does Russia have to submit the Yukos dispute to binding international arbitration? Look at the wording of the treaty, say the Russians: arbitration is compulsory only for states that are contracting parties; a contracting party is defined as a state that has consented to be bound by the treaty and for which the treaty is in force; and provisional application applies, by definition, only to countries where the treaty is not yet in force.

Not so, say the Yukos investors. If you look at the text of Article 45 and the treaty as a whole, it is clear from the context that “contracting party” was meant to include countries that have agreed to apply the treaty provisionally. Provisional application does not violate the Russian constitution, they insist, and Russia should not be permitted to escape its obligations now.

Ordinarily, I could see this becoming a massive wrangle which would either tie the arbitrators themselves in knots or just give the Russian government the opportunity to refuse to take part, and to then ignore any eventual verdict.

But, surprising everyone, the Russian government seems perfectly happy to submit to arbitration, regardless of whether or not it is actually obliged to.

At first glance, this seems like a big risk – if the arbitrators ruled against Russia, debt collectors could pursue any Russian assets held worldwide with the exception of those that hold diplomatic immunity, such as embassies.

Presumably, Russia has taken a good hard look at previous international arbitrations, and seen that they rarely come up with shock decisions – particularly when the government party can make a reasonable argument that it followed due process domestically.

I would expect the Russian government to make a case that the sale of Yukos was to cover the debts of the company (and, by implication) its shareholders. The settlement of those debts they will argue was, therefore, adequate compensation for the seizure of Yukos and its assets.

Compared to this, I think the Yukos’ lawyers are going to be fighting an uphill battle…

Yukos shareholders sue Russia for $100 billion is a post from: Siberian Light

There is some concern about the legality of these moves, with his lawyers, and human rights activists saying that Russian law stipulates a prisoner should be imprisoned close enough to his home city that relatives can visit relatively easily (which, of course, would mean that he would have to be somewhere close to Moscow):

His confinement in IK-10 camp will put him a six-hour flight plus a seven-hour car ride from Moscow, and human rights bodies accused authorities of violating Russian law by sending him so far from his home and family.

“The law says that a general regime prisoner should serve his term somewhere close to his home. The Russian authorities are spitting on their own law,” said Yevgeny Ikhlov of the All-Russian Movement for Human Rights.

“This is being done on purpose to complicate as much as possible Khodorkovsky’s contacts with his family, his defence and with society. Khodorkovsky is a prominent public figure and prominent opposition ideologist and everything is being done to isolate him,” Ikhlov told Reuters.

Clearly the choice of his prison – far, far away from Moscow and the prying eyes of the international press – was intentional. Whether it breaks Russian law, I have no idea. If it does, expect to see Khodorkovsky’s lawyers back in action pretty soon.

The BBC, by the way, has a profile of Khodorkovsky’s prison – which used to service Uranium mines in the 1960s:

Today, YaG-14/10 is chiefly a garment factory where inmates sew protective clothing for the prison system and the police, as well as making bed linen and doing private orders.

Khodorkovsky will find himself about 4,700km (3,000 miles) east of Moscow.

On the evening the name of his prison was revealed, it was -9C in Krasnokamensk; by January, the average daily temperature should range between -18C and -33C.

According to Zabinfo, most of YaG-14/10′s inmates are serving between three and five years and the average age is 24 – significantly younger than Khodorkovsky, 42.

The most common conviction is theft with 40% of inmates sentenced for it.

Russia Blog has more information on the prison, which seems to indicate that, as Russian prisons go, YaG-14/10 isn’t so bad:

As of 2002, the colony had 1389 prisoners. There were rumors that the prisoners were forced to work in the mines, but the rumors were false. Today, the colony is one of the top prison facilities in the country; the prisoners live in two-story brick buildings, and sleep in bunks. There is a TV in the recreation room, and on the weekends prisoners are allowed to attend a “club”. Prisoners can be employed to sew textiles or work in a metal shop.

By the looks of this report from Mosnews, Khodorkovsky has already found a useful way to occupy his time while he serves at Putin’s pleasure – he’s going to write a PhD dissertation:

Mikhail Khodorkovsky is a graduate of the National Institute of Oil and Gas in Moscow. His Ph.D thesis will likely be dedicated to his work. According to Russian law he can defend it even in prison.

Good for him.

According to Mosnews, though, Khodorkovsky has brought two suitcases filled with books with him. Question: Just how much luggage is the average Russian prisoner allowed to bring with them?

Khodorkovsky sent to prison in Siberia, plans to complete PhD is a post from: Siberian Light

Cast your minds back to the original trial, earlier this year, and you’ll remember the judges droning on for day after day as they painstakingly read out every word of their judgment.  Back then, they wanted to drag out the climax of the trail as long as possible as an attempt to dilute the media’s attention.

All of a sudden, though, it’s Khodorkovsky who wants to drag things out as long as possible.

Mr Khodorkovsky, dressed in jeans and a brown suede jacket, told the court: "I cannot defend my interests in the appeal without a lawyer familiar with this case."

The move angered state prosecutor Dmitry Shokhin, who called it "a banal attempt to stretch out the court hearing".

Mr Khodorkovsky’s legal team say they have yet to receive an agreed record of the original trial.

Why this sudden reluctance to face his day in court?  Because Khodorkovsky has found a loophole in the law that will allow him to stand for election to the State Duma – and the loophole won’t close until his appeal is complete.  Unfortunately for Khodorkovsky, though, the election is in December, and the appeal trial is extremely unlikely – under normal circumstances at least – more than a few weeks.  So, expect an avalanche of delaying tactics from the Khodorkovsky camp, while the prosecutors in turn attempt to hurry things along.

Both camps, meanwhile, are waging a merry little media war, each trying to convince the world that Khodorkovsky is a martyr that the people will support in droves, or a chancer who has no real chance of halting the grinding wheels of Russian justice.

Protests, both pro- and anti- Khodorkovsky, are continuing to hit the streets hard.  Neeka’s Backlog provides an eyewitness report (and another here) and a series of photos of this weekend’s events.  She finishes off with this comment, which seems to demonstrate that perhaps Khodorkovsky doesn’t actually have all that much support among the Russian public… but that if protests against him continue, Putin may play right into his hands.

The most interesting thing about the rally was this: if it hadn’t been for all the police, and OMON, and the mad honking of the soccer fans, the pro-Khodorkovsky rally would’ve gone virtually unnoticed. Why Putin is giving all the publicity to the people everyone considers his enemies is beyond me.

That’s very nice of him, I think, though somewhat silly.

Finally, it looks as though Khodorkovksy may be starting a trend. Ex Intelligence Department Colonel Vladimir Kvachkov, who is accused of trying to assassinate energy oligarch Anatoly Chubais is also considering standing for election, according to Kommersant.

Khodorkovsky roundup is a post from: Siberian Light

The BBC quotes the following extracts from Khodorkovsky’s statement, read by his lawyer:

"On August 19… my comrade Platon Lebedev was moved to
a 3 sq m [32 sq ft] isolation cell. Platon is seriously ill," the
statement said.

"It is obvious that they threw my friend into the
isolation cell to get their revenge on me, Mikhail Khodorkovsky, for
[giving] articles and interviews."

"He knows he is not alone," the statement added.

"Let the Kremlin think it is showing strength, in fact it is a display of their weakness and fear.

"Being in no condition to enter an open political
discussion with me, they use the last weapons – an isolation cell and a
common cell."

I hate to sound cynical, but does anybody really imagine that this dry hunger strike will last? I don’t.

All hunger strikes are – to an extent – publicity stunts.  Some are more desperate than others, but the aim is always to appeal to the decency and sympathy of outsiders.  And Khodorkovsky’s is no exception.  But I do wonder whether this is a mistake on his part. 

I don’t necessarily doubt Khodorkovsky’s sincerity, and the importance he attaches to the plight of his friend.  But I don’t think that many others will believe that Platon Lebedev’s isolation is an issue worth making such a strong statement over.  People aren’t going to cry out in sufficient numbers to force the Russian government to back down over the issue and Khodorkovsky will have to either continue his strike or back down himself.  Given his current political position – martyr, potential (although still long shot) challenger to Putin – it simply isn’t in his interests to continue the strike to an extreme over this issue.  If he does, he’ll look like he is overreacting.  And, if he backs down he will lose face. 

Khodorkovsky on dry hunger strike is a post from: Siberian Light

If they [the authorities] use clumsy enough methods (and based on the Russian authorities’ track record on dealing with situations like this, they probably will), all they’ll do is cement Khodorkovsky’s reputation as a modern-day dissident and a political prisoner. For this reason, the cynic in me thinks that he should go ahead and start campaigning – it will be good for his image in the long run. And the idealist in me also thinks he should do it, to exercise his rights as a citizen and to continue to bring attention to the inanity of his imprisonment. Along with many other Russia-watchers and Russians, I eagerly await further developments in this story.

I’d certainly agree that the authorities will pull out all the stops in an effort to prevent Khodorkovsky from running – if he were to win, the result would send shock waves through Russian politics, and if he were to lose in a clearly crooked election, the Kremlin would be humiliated in the eyes of the Russian public and the world. On the other hand, Khodorkovsky has much at stake, too – what if he discovers he has no public support?  Leonid Radzikhovsky, writing in Ezhednevny Zhurnal (translated by Lyndon) sets out exactly what is at stake, for Putin and for Khodorkovsky:

Well, and the most important thing: this would be not just a vote on the "Khodorkovsky question," but on the "Putin question," it would to some extent show the real feelings of people toward the authorities and to their most implacable foe. If Khodorkovsky (as many are certain) were to receive an insignificant percentage of votes, this would become for him both a personal drama (his illusions about the people would be destroyed) and a sobering moment. But if he were to come close to winning or actually make it into the Duma, then that would be a small political earthquake, and perhaps a portent of larger tremors.

Finally a couple of quick predictions.  Now, I’m the first to admit that I know virtually nothing of Russian electoral law, so consider the following speculation about as reliable the predictions you’d get from reading tea leaves:

• I wonder if there is some clause that says that politicians who want to stand for the Duma must register their candidacy in person.  Khodorkovsky would have problems fulfilling such a criteria, being currently under lock and key.  If not this particular method, then I’d expect something similar.
• No matter what they throw at Khodorkovsky, I think he’ll come out of this smelling of roses.

More on Khodorkovsky "will he won't he?" is a post from: Siberian Light

"I  am absolutely confident that they will not allow me to run. But if I receive  letters from people whose opinions are important for me, I will agree,  even  being  aware of the fact that, firstly, they will not let me win  the  elections,  and, secondly, that renewed repression will follow,"  Khodorkovsky’s  lawyer Yury Shmidt quoted the former Yukos CEO as saying.

According to a report in Vedmosti, quoted by RIA Novosti, several senior liberal politicians have already asked Khodorkovsky to run. 

At first glance, the chances of Khodorkovsky running for the Duma would seem absurd.  After all, he’s in jail.  However, the deputy head of the Central Election Commission has gone on record to confirm that Khodorkovsky is eligible to stand in the by-election, although he does cast some doubt on whether he will actually be able to:

"Under the law, he [Khodorkovsky] has this right. Time will show if he is registered [on time]," Deputy Chairman of the commission Oleg Vilyashev told reporters on Wednesday, commenting on press reports that some right-wing politicians had advised Khodorkovsky, 42, to run for a seat in the lower chamber of parliament, the State Duma, in a Moscow by-election.

Vilyashev went on to clarify that Khodorkovsky was eligible because, although he had been convicted, his appeal against the conviction had not yet been confirmed.

If Khodorkovsky does stand for election (is allowed to stand for election?) and goes on to win a seat in the Duma, this will really set the cat amongst the pigeons in Russian politics.  It would show that Khodorkovsky is a credible challenger to Putin (or whoever is nominated to succeed Putin) in an electoral contest.

If Khodorkovsky were to become a Duma representative, it would pose a real question as to his legal status.  As a Duma representative, Khodorkovsky would have immunity from prosecution, guaranteed under the Constitution. 

1. Deputies to the Federation Council and deputies to the State Duma shall possess immunity throughout their term in office. A deputy may not be detained, arrested, searched except when detained in the act of perpetrating a crime, and may not be subject to personal search except when such search shall be authorized by law to ensure the safety of other people.
2. The question of stripping a deputy of immunity shall be decided on the recommendation of the Prosecutor-General of the Russian Federation by the corresponding chamber of the Federal Assembly.

I’m certainly no expert on Russian law, though, so I have to say I have no idea as to whether this applies to someone who has already been convicted of a crime, but is appealing the verdict.  I’d imagine it’s probably something that Russian lawyers don’t agree on, though, and it could spark yet another huge legal case.

I’m still in shock about this announcement, and these are just my initial reactions.  Take them for what you will and bear in mind that Khodorkovsky still has to overcome three major obstacles:

• First, Khodorkovsky must persuade himself that it is worth running and that he wants to take this risk – especially when he considers that his popularity is greater outside of Russia than it is within Russia.  If he harbours political ambitions and loses in what is perceived as a fair fight, this could destroy his political career. 
• Second, the Central Election Commission must confirm that he is eligible to run.  His opponents will place huge obstacles in his way but he appears to have the law on his side.
• Finally, he must actually win the election…

Update:  I’d been meaning to post on the news that Khodorkovsky was recently moved to a new cell with 10 other inmates, but the news that he might stand for election superceded it.  The change of cell means that not only is Khodorkovsky now living in far more crowded accomodation, but has lost most of his priviliges (fridge, tv, etc).

Earlier today, speculation as to the motives for the move centred around Left Turn, an article that Khodorkovsky had recently written.  Prison officials denied that the move was in response to the article, and explainted that he had been moved because his original cell was being "renovated."  This explanation was, as you would expect, greeted with much scepticism. 

In the light of today’s news, I’m forced to wonder if the Kremlin somehow got news that Khodorkovsky was considering standing for election, and decided to give him just a tiny warning of their power over him…

Or is that just me being overly cynical again?

Update 2: This excellent overview report in The Moscow Times gives a few further details, including the district in which Khodorkovsky may run:

Analysts said the Kremlin would be unlikely to allow Khodorkovsky to run, since he would have a good chance of winning in the Universitetsky district, an area that is home to many of the city’s intelligentsia.

Update 3: Nothing much more to write at this stage – the only key variable at the moment is whether Khodorkovsky decides to run or not, and we’ll have to wait for the man himself to find the outcome of that decision. 

In the meantime, two posts worth checking out on the affair:  First, Robert at Publius Pundit notes that yesterday also brought the announcement that a group of Far Eastern lawmakers have drafted an amendment to the constitution that would allow Putin to run for a third consecutive term:

Maybe we should just go ahead and change his title to “President-for-life Putin” while we’re ahead of the game. That way it won’t come as any shock when the rubberstamp Duma eventually approves a constitutional amendment like this.

And Lyndon at Scraps of Moscow has a roundup of all the major stories in Russia yesterday, including the Khodorkovsky will he won’t he, including plenty of links to Russian news sources on the story in both Russian and English.

Khodorkovsky to stand for election? is a post from: Siberian Light

In the absence of any final verdit, reporters have been filling copy by writing about the protests around the courthouse.  Around 300 pro-Khodorkovsky and anti-Putin protesters rallied outside the court yesterday, and managed to wind up the local police so much that 28 of them – including Yabloko deputy head Sergei Mitrokhin – were detained.  And just for good measure, the police decided to liven things up by beating former world chess champion Garry Kasparov with batons.  I hope he has good insurance, and a good doctor – he’s developing a habit of being assaulted in public.

Veronica was at the courthouse, and has posted several pictures at Neeka’s Backlog.

Finally, Alex(ei) posts his reaction:

Reports of this "brawl," oddly perhaps, have affirmed my conviction that Putin’s junta must go. I’m not sure about Putin himself, but the people he brought in to work for him in the Kremlin — mostly from St. Petersburg and the KGB — have been consistently displaying two qualities that are deadly when mixed: belligerence and patent, unprecedented incompetence. Yeltsin’s kleptocratic lieutenants seem efficient and sophisticated in comparison.

I couldn’t agree more.  I’ve written before about how I feel Russia’s foreign policy is undermined again and again by incompetence, and it’s clear that the same problems afflict the Kremlin in implementing its domestic policies.

Khodorkovsky verdict adjourned – again is a post from: Siberian Light

"My lawyers have informed me today that my
friends decided to pay the claim laid against me and Platon Lebedev
(head of Menatep), " Khodorkovsky said at trial.

"I would like to stress that the payment does
not mean that I agree with claims tax authorities laid against me,"
Khodorkovsky pointed out.

I wonder whether this actually has any implications for Khodorkovsky’s trial though. (He has been charged with tax fraud and closing arguments are due to begin on Monday).  My quick guess is probably not. Whether he stumps up the cash now is pretty much irrelevant to the case.  He failed to pay the tax on time, and that is what is actually at issue in the court case.  Having said that, though, I’m no expert on Russian tax law, so I’d welcome any input from those with more understanding.

I also wonder why, when he owed what for him is the relatively trivial sum of $54 million, Khodorkovsky is paying up only at this late date.  He surely could have found, or his friends could have found, the money earlier had he wanted to.  Paying at this late date says to me that he is firmly convinced he is going to lose this court case.  The money isn’t aimed at securing his freedom, but at increasing his status as martyr.  "Look at me," he can say, "I paid my taxes in full.  But Putin jailed me anyway so he could save his own skin."

Khodorkovsky back taxes paid is a post from: Siberian Light

Here, as Bill sees it, is the bottom line:

For all the negativity in the West about matters of Russian corruption, murderous oligarchs, dysfunctional banks, and inept civil servants, the bottom line is that in the past four years there has been (i) a remarkable success in all Russian capital markets, (ii) a period of extraordinary change in the Russian tax code and budgetary and state financial system, and (iii) several years of such enormous fiscal surpluses that the country is now a net creditor nation and holds sufficient foreign reserves to buy back 100 percent of its foreign-owned debt with enough left over to fund close to a year’s imports.

Compared to Russia, it is America that is the nation in deep financial trouble.

Russia has strong economic growth (would you believe over 7 percent annually?), strong wage growth and consumer consumption, and a strong Ruble. In fact the Ruble is so strong, there is a worry among Russians that it might be upwardly valued, which would serve to put the brakes on economic growth there.

Although he does note that it’s not all sunshine:

But, just like other emerging economies, like China, India and Brazil, it is quite obvious that Russia is hardly perfect. Taking Yukos away from Menatep and Khordorovsky, on a charge of tax evasion, did hurt the minority shareholders, which will take much time for reputational recovery. It will also take generations, possibly, to solve the impediments in today’s civil service, banking and mortgage industries.

He makes a strong argument, especially to a non-economist, non-securities trader like me.  A particularly interesting point he also goes on to make is that one of the possible reasons for such negative press in the Western business media is that men like Khodorkovsky has better PR skills than Putin.

Overall though, I’d have to say that if I were a business looking into investing into Russia , I would be extremely wary.  In particular, in the light of the fickle way in which the Russian government seems to pursue vendettas against some companies and not others, I’d want to minimise my exposure as much as possible.  Which, in practice, means not investing as much as I otherwise would.

Invest in Russia! is a post from: Siberian Light

Alfa Bank chief strategist Chris Weafer said it looked like the missing $1.7 billion was the deposit for the auction that Baikal Finance Group appeared to have hastily raised from state-friendly companies to take part in the auction.

Under the deal, Rosneft may have paid back the necessary loans but has not been able to recoup $1.7 billion that it was set to gain from a sale of its stake in Sevmorneftegaz to Gazprom, Weafer said. The Federal Anti-Monopoly Service said last week that the sale is on hold as it scrutinizes the deal.

"This data on the transfers to the budget have only just been disclosed," Weafer said. "It looks like it’s only just happened and it seems they’ve scrambled to do so in response to the fact that [Yukos] has been demanding documentary evidence it has been done."

Rumours persist that Baikal Finance Group, the holding company who initially bought Yuganskneftegaz remain minority shareholders, prompting concerns that someone benefited massively from the deal, in a manner reminiscent of the shady Russian privatisations of the early nineties.  Independent Duma deputy Vladimir Ryzhkov says:

"if this is so, then the individuals who invested a couple of million dollars for the deal have gotten to be holders of billions of dollars worth of assets in a matter of weeks."

I’m sure that, eventually, after several years of litigation Rosneft will be confirmed as the legal owner of Yuganskneftegaz.  But the stain that the whole affair leaves on Putin and the current Kremlin administration in particular, will take far longer to erase.  Not just because the deal itself was shady – big businesses don’t normally lose too much sleep over that – but because the attempt to cover it with a veneer of legality was so incompetently handled.

Yuganskneftegaz money turns up! is a post from: Siberian Light