Khodorkovsky Pardon Signals Putin Rift With Russia Oil Czar

Dec 24, 2013 12:46 pm ET

(Updates with Swiss visa request in 24th paragraph.)

Dec. 24 (Bloomberg) -- Mikhail Khodorkovsky, newly released from Russian prison, is casually dressed and looking relaxed as he fields questions in a $1,400 Berlin hotel suite. He has some startling things to say.

One: for a man once considered to be worth $15 billion, he is now relying upon his lawyer to pay his immediate bills. Two: he’s not going into exile (probably in Switzerland) quietly. He says Vladimir Putin pardoned him over the objections of Igor Sechin -- the man Putin entrusted with constructing the dominant state oil company.

The assertion, if it bears out, signals a rift within the nation’s elite since Sechin, head of OAO Rosneft, the world’s biggest publicly traded oil producer by output now, and Putin go back to when the two worked in the St. Petersburg mayor’s office in the 1990s. Khodorkovsky has long contended that Sechin helped orchestrate the demise of his company, Yukos Oil Co.

Khodorkovsky was arrested in 2003 for tax evasion and fraud and Yukos was subsequently dismantled and auctioned off to pay for billions of dollars in back taxes. Most of its assets were eventually transferred to Rosneft, which produces about 40 percent of Russian oil.

Khodorkovsky and his supporters have proclaimed his innocence, and his imprisonment was seen as a milestone in the Russian state wrestling back control of the oil industry, which underpins Putin’s power.

‘Central Role’

Now, if Putin has resisted Sechin’s efforts to keep Khodorkovsky in prison, he “is showing how he is distancing himself from his entourage as he once did with the oligarchs,” Gleb Pavlovsky, a former Kremlin adviser, said by phone from Moscow. “He wants to guarantee his central role and not allow any groups to become a threat to him.”

Rosneft declined to comment, according to a press official who asked not to be identified, citing company policy. Putin’s spokesman, Dmitry Peskov, also declined to comment. Sechin said after Khodorkovsky’s release that he wasn’t concerned that the former Yukos owner will seek to regain former assets and would even consider a job application from him, adding that all top management slots at Rosneft are filled.

The former inmate, during the wide-ranging interview, painted Sechin as the mastermind behind Russia’s turn toward a growing role of state ownership, who also bred inefficiency at the company he built on the ruins of Yukos.

‘Real Oligarch’

Sechin “is a real oligarch,” said Khodorkovsky, 50, wearing jeans and a sweater on his fourth day of freedom from a decade in Russian prison camps. “He convinced Putin that state capitalism is right. I know that right up to the very end he was trying to convince the country’s leadership not to free me only because he’s personally afraid of something.”

While Khodorkovsky spent what he says were “4,000 difficult days” in prison, first near the Chinese border and later close to the Arctic circle, the surging price of oil helped Putin consolidate his power. As the struggling global economy curbs demand for the fuel, Russia is now battling its slowest economic growth since a 2009 recession.

Along with the growth of Rosneft, the government expanded its role in the economy. State-owned companies have reached more than half of Russia’s economic output, compared with 42 percent in 2008, according to BNP Paribas SA’s Moscow unit.

That increase is largely the work of Sechin. The Rosneft chief executive officer expanded his conquest of the oil industry this year with the $55 billion takeover of BP Plc’s Russian joint venture, TNK-BP.

BP, Abramovich

BP, which now owns 20 percent of Rosneft, acted within the boundaries of the law in taking some ownership in a company built on Yukos’s expropriated assets, said Khodorkovsky.

“It’s another matter whether it was ethical,” he said. Khodorkovsky ruled out any lawsuit to recover more than $3 billion that Chelsea FC owner Roman Abramovich received for the aborted merger of his Sibneft oil company with Yukos.

Khodorkovsky said he plans to meet with his business partner Leonid Nevzlin, who lives in Israel, to discuss claims he voiced in a 2005 Vedomosti interview that Abramovich helped mastermind the destruction of Yukos. Nevzlin’s accusation is “fantasy,” John Mann, an Abramovich spokesman, said by e-mail.

“I’ll definitely meet and talk with Nevzlin about Abramovich. I’m also very interested in this issue, and what information Nevzlin has about it,” Khodorkovsky said.

Sechin’s access to Putin and Rosneft being embedded in the Russian power structure has failed to benefit the country’s oil industry, according to Khodorkovsky.

$14 Crude

Yukos in 1998 viewed the then $14 a barrel cost of crude as a “great price” that allowed it to finance investments, he said. Now, with Brent at about $110, Sechin is asking for tax breaks to develop reserves in eastern Siberia, he said.

“Rosneft’s performance isn’t something to be proud of,” said Khodorkovsky, who’s been living in a five-star hotel in Berlin with his eldest son and parents since his release. He said he doesn’t have any desire to seek revenge against Sechin.

“Sechin was really only interested in money, which for me isn’t something that gets under my skin,” Khodorkovsky said.

The former tycoon said he doesn’t have any money available and is relying on his lawyer’s personal credit card to pay for bills.

$2 Billion

“I don’t have any access to my funds right now and I don’t have any precise idea where they are and how much I have,” Khodorkovsky said, adding that he doesn’t plan at the moment to ask Nevzlin to return his majority stake in Group Menatep Ltd., which was the biggest Yukos owner at the time of his arrest. Yukos shareholders may get more than $2 billion accumulated by foreign units, mostly proceeds from the sale of the oil producer’s non-Russian assets.

Khodorkovsky, due to be joined in Berlin by his wife, Inna, and their three children flying in from Moscow, said he’d “most likely” settle in Switzerland. He also ruled out a return to Russia for fear of not being allowed to leave again.

He applied today for a three-month visa at the Swiss embassy in Berlin, according to Stefan von Below, a spokesman for Federal Department of Foreign Affairs. No decision has been made, von Below said by e-mail.

He has already ruled out financing opposition parties because it would be “dangerous” for them, and said that he doesn’t plan to spend any money on supporting non-government organizations. Instead, he will focus on fundraising for any projects he gets involved in.

Before his 2003 arrest, the magnate sponsored opposition parties and a foundation that promoted civil society.

‘Losing Time’

Germany played a pivotal role in his release. Khodorkovsky traveled to the German capital with the support of Chancellor Angela Merkel and former Foreign Minister Hans-Dietrich Genscher, who arranged for him to fly on a private jet to Berlin’s Schoenefeld airport. He said yesterday he has a yearlong German visa.

“The most unpleasant part of prison was the feeling of losing time senselessly,” said Khodorkovsky, who was once stabbed in the face while in jail. “The food, the clothes, even being in an enclosed space -- those are things you can get used to if you have a little self-discipline.”

Khodorkovsky’s imprisonment was a symbol of selective justice as Putin took on the country’s most powerful businessmen. While incarcerated, he became a reminder of the lack of rule of law under the Russian leader, who came to power in 1999. He was potentially facing another seven years of jail on new $10 billion money-laundering charges, according to law enforcement officials.

Soviet Dissidents

The abrupt release and departure from Russia reminded Khodorkovsky of how dissidents were whisked out of the Soviet Union.

“They must have the protocol from back in the day,” he said. “They just opened up the book to step number 18 in the instructions and followed the plan. It was very funny.”

His release does not appear to damp Rosneft’s appetite for continued expansion. On Dec. 20, the day he was let out of prison, Morgan Stanley announced it agreed to sell its global oil merchanting business to the state-owned company.

“Sechin was one of the people who were behind this case and he didn’t have any reasons to want his freedom,” Pavlovsky, the former Kremlin adviser, said. “No one considers Sechin as a humanist or supporter of Khodorkovsky’s release.”

--With assistance from Ryan Chilcote in London, Radoslav Tomek in Bratislava, Slovakia and Jake Rudnitsky, Ilya Arkhipov and Scott Rose in Moscow. Editors: Balazs Penz, Ken Wells, Torrey Clark