Bloomberg News

Khodorkovsky Says Corruption Means Russia Needs $200 Oil

June 16, 2011

(Updates with Medvedev adviser comments in 15-17th paragraphs. For a transcript of the interview, click here. For more on the St. Petersburg conference {EXT3 <GO>})

June 16 (Bloomberg) -- Russia’s failure to stop corruption and diversify the economy means it needs $200 a barrel oil to match the economic growth of China and India, said Mikhail Khodorkovsky, the former billionaire jailed since 2003.

Khodorkovsky, who says the charges are politically motivated, said his case should remind global business leaders gathering for the St. Petersburg International Economic Forum, which starts today, that no one is safe from extortion. Graft threatens the foreign investment President Dmitry Medvedev seeks to help boost growth to as much as 10 percent, he said.

“Economic reforms require 100 percent guarantees for private property and an effective, lawful state,” Khodorkovsky, 47, said in written answers to questions relayed through his lawyers. “Under the current political and economic model, to get a 10 percent growth rate for the Russian economy the oil price would have to remain solidly above $200 per barrel.”

Khodorkovsky, Russia’s richest man when he was arrested on the tarmac of a Siberian airport in October 2003, says he’s been persecuted by Prime Minister Vladimir Putin because he financed opposition parties. The former chief executive officer of Yukos Oil Co. was convicted of fraud and tax evasion in 2005 and oil embezzlement in December 2010, pushing his sentence to 13 years.

He responded to questions from Bloomberg News while being held at a detention center in Moscow. The answers were delivered June 10, the day he was sent to an undisclosed penal colony.

‘Peripheral and Cosmetic’

Medvedev said in a January interview at the World Economic Forum in Davos, Switzerland, that Russia sought to boost growth to 8 percent to 10 percent within five years. Chinese President Hu Jintao and business chiefs including Deutsche Bank AG Chief Executive Officer Josef Ackerman and Citigroup Inc. CEO Vikram Pandit are among those attending the St. Petersburg forum.

Medvedev, a corporate lawyer and Putin protege, has made reducing the state’s role in the economy, fighting corruption and improving the rule of law key goals since succeeding his mentor as president in 2008.

“So far he says the right words, but many changes he’s initiated in important spheres of public life are peripheral and cosmetic,” Khodorkovsky said. Medvedev and Putin “have a common goal: to stabilize the existing political and economic system in Russia, not destroy it,” he said.

Presidential Election

Putin, 58, who served in the KGB and has been criticized for rolling back democratic freedoms, hasn’t ruled out running for president again next year.

That would eliminate any possibility of change under Medvedev, Khodorkovsky said. Medvedev’s attempts to strengthen the legal system have failed because of his obligations to Putin and “excessive caution,” he said.

“Perhaps after being elected for a second term Medvedev will manage to overcome those limits,” Khodorkovsky said. Medvedev is a “new type” of leader who sees government “as a system of checks and balances, norms and institutions rather than an instrument of personal control,” he said.

Yukos, then Russia’s biggest oil company, was declared bankrupt and sold in pieces after facing $30 billion of tax claims during Putin’s presidency. State-owned OAO Rosneft controls most of Yukos’ former assets.

Out of Touch

Putin’s spokesman, Dmitry Peskov, said Khodorkovsky is out of touch after his years in prison.

“The president numerous times pointed out that we do really have problems with the investment climate, but we cannot ignore completely all the success stories of western companies in this country,” Peskov said.

Putin and his supporters favor the status quo over modernization, and this makes it impossible to accelerate economic growth, Igor Yurgens, a Medvedev adviser who heads a research institute set up by the president, said today in an interview at the St. Petersburg forum.

“That’s the stability party for you, those who say take it easy, don’t go out of your way because we are OK with our 4 percent growth in GDP,” Yurgens told Bloomberg Television. “We have to do some bold steps forward in privatization.”

There is no way fight corruption without first relaxing political controls to allow a “sizeable” opposition, he said.

Russia’s economy expanded 4.1 percent from a year earlier in the first quarter, compared with 9.7 percent growth in China and 7.8 percent in India.

‘Exit Strategy’

Putin and Medvedev say they want to attract foreign investment to help wean Russia off its dependence on energy exports. Energy and metals make up 84 percent of exports from the world’s largest oil producer. Urals-grade crude, Russia’s export blend, fell 0.5 percent to $116.92 a barrel yesterday after reaching a record high $122.88 on April 8.

Khodorkovsky said his case, illustrates the danger investors face in Russia.

“The exit strategy is the key investment risk in Russia,” Khodorkovsky said. “As long as your business isn’t profitable it won’t be taken away, but later various things can happen, even if you are prepared to pay bribes.”

Russia is the world’s most corrupt major economy, according to Berlin-based Transparency International’s 2010 Corruption Perceptions Index released in October. The country was ranked 154th among 178 countries, alongside Tajikistan.

“It would be naive to think that the corrupt bureaucracy will not use these opportunities” for “extortion,” Khodorkovsky said.

Underwear, Books, Spoon

Khodorkovsky, whose fortune was once estimated at $15 billion by Forbes magazine, declined to reveal his net worth.

“What I definitely own is underwear and books that were brought from home to jail,” he said. “I can use a bunk in the cell and a spoon for food.”

Khodorkovsky praised shareholder rights activist Alexei Navalny, who is facing the threat of prosecution after campaigning against corruption at state companies, and said he’s more hopeful of a resurgent opposition movement because “apathy is disappearing.”

When asked where Russia would be in five years, he was optimistic.

“I see it as a lawful and democratic country,” Khodorkovsky said. “Russia can’t choose whether to develop or not. If it doesn’t, it won’t survive as a civilized state.”

--With assistance from Ryan Chilcote in St. Petersburg. Editors: Willy Morris, Balazs Penz

To contact the reporters on this story: Ilya Arkhipov in Moscow at iarkhipov@bloomberg.net Henry Meyer in Moscow at hmeyer4@bloomberg.net; Lyubov Pronina in Moscow at lpronina@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net


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