Translated material
"Inexperienced Witness"
The head of the Ministry of Industry and Trade Viktor Khristenko spoke at the trial of Mikhail Khodorkovsky
In the Khamovnichesky District Court of Moscow, where the trial of the former head of the Yukos oil company Mikhail Khodorkovsky and the former chairman of the Menatep MFO Platon Lebedev is taking place, yesterday the former First Deputy Prime Minister, and now the head of the Ministry of Industry and Trade, Viktor Khristenko, testified as a witness. His answers to the questions, as well as the answers of the head of Sberbank of the Russian Federation German Gref the day before, essentially dealt another blow to the indictment, according to which the former head of YUKOS managed to steal about 350 million tons of oil for a total of about 900 billion rubles over several years. According to the minister, who oversaw the fuel and energy complex in the Russian government about ten years ago, he knows nothing about the theft of oil in such large volumes. The defendants' lawyers were pleased not only with the three-hour speech of a high-ranking witness, but also with the very fact that an official of such a level came to court.The visit of the current minister caused no less excitement in the Khamovnichesky Court than the appearance the day before of the head of Sberbank of the Russian Federation, German Gref. Let us recall that Mr. Khristenko announced a few days ago that he would definitely appear in court, as he did not want to shirk his civic responsibilities. The meeting room, as well as the press room, was overcrowded, and many journalists had to watch what was happening while standing. By the time the meeting began, the minister was late, and Judge Viktor Danilkin even managed to inform those present that “witness Khristenko was stuck in a traffic jam,” but in the end the wait for the government official did not last long. Accompanied by several bodyguards, he quickly ascended to Hall No. 7.
Having greeted the defendants with a nod of his head and answered the judge’s standard questions in such cases, Mr. Khristenko began to answer the questions of Mr. Khodorkovsky, who had thoroughly prepared for the conversation with the minister, during the interrogation even quoting one of the fragments from the official’s book.
First, the disgraced oligarch asked the witness a series of questions about the activities of vertically integrated oil companies and their relationship with the government. “Why has the government supported and approved the existence of vertically integrated oil companies, including YUKOS, over these years? Why was this necessary? - Khodorkovsky asked. “The term “supported” may not be entirely correct,” answered the witness. - But it is absolutely clear that vertically integrated companies are part of general economic structures and are an understandable tool for managing large economic structures. In fact, there is nothing extraordinary in this, nothing that can attract attention, including now.” Then the defendant asked whether the government realized “the economic feasibility of uniting the activities of oil companies from the stages of field exploration to gas stations into a single technological chain.” Mr. Khristenko, before answering, made a reservation that he was unfamiliar with the case materials, and he had no experience speaking in court, that is, he was “not such an experienced witness in court to start asking questions about the accusation himself.” In essence of the question asked, he said the following: “Building integrated structures on a technological basis is, to some extent, the most justified and meaningful practice. The end-to-end technological principle of building structures is, has been and remains the norm for building holdings.”
Mr. Khristenko recalled that in 1998-2004 (that is, at the time when oil was allegedly stolen) he worked as Deputy Prime Minister. About the company once led by the defendant Khodorkovsky, he said the following: “The management structure of YUKOS was not much different from other structures, so I had neither the rights nor the grounds to demand a change in the structure. By and large, where the state is not a shareholder, especially the largest one, there is no reason to demand any structural changes. Demanding that the activities of any structures comply with the law is the norm and responsibility of government agencies.” In addition, he described Yukos as a highly profitable company.
The defendant was interested in how legal the practice was when oil prices within the country were three to four times different from those in European ports. This question was asked by Mr. Khodorkovsky due to the fact that it is the significant difference in prices that he is now blaming. “The domestic Russian price differs from the Rotterdam price in energy duties and logistics costs,” Mr. Khristenko answered. -- Transfer prices are nothing exotic or illegal. It is quite difficult to say exactly what the price should be. There were no prices set by the state for either oil or petroleum products. There were market prices that were determined by vertically integrated oil companies. These companies dictated the fiscal price for petroleum products, including oil, to the market. Another question is how legal it was.”
In asking the following question, Mr. Khodorkovsky referred to a book by Mr. Khristenko called “Rails, Pipes, Wires”: “Here you write that the problem of differences in domestic prices is due to the fact that limited export opportunities make exports more profitable, than supplies to the domestic market. Are duties and logistics the only factors that determine the price difference? Or was the overcrowding of the domestic market without the possibility of supply for export via pipe also reflected in domestic prices in the years we are talking about?” “Of course, excess supply in the market significantly affects downward price pressure. But there was also the opposite situation. When supplies to the domestic market were more efficient than supplies to export. Therefore, in different ways,” the witness answered.
The minister also touched upon the activities of oil traders. “It was beneficial to have traders abroad. Their use, in my opinion, was due to the desire to take oil outside the country,” he said, noting that at a certain point the difference between contract prices and prices for Urals oil was significant and was the reason for the proceedings in the Russian government. “We saw this to a certain extent as concealment of income from taxation,” he said.
Having discussed with the witness a number of purely professional issues related to the activities of oil companies and their interaction with the government in which Mr. Khristenko worked and continues to work, Mr. Khodorkovsky moved on to the topic of interaction between Yukos and the Transneft company. The defendant asked whether Mr. Khristenko, who was on the board of directors of Transneft from 2000 to 2003, knew that Yukos was delivering oil to the company’s pipeline system. “Of course, YUKOS did not hand over anything; this term is incorrect. YUKOS contracted with Transneft to pump a certain part of the raw materials. I can’t say what size this client was, but it was large,” he said. According to the witness, Transneft was responsible for the safety of raw materials from the initial pumping point to the final one. When asked if he knew anything about the physical theft of oil from pipelines, Mr. Khristenko said: “Physical theft of oil from the pipeline is a problem that was and is and which we are actively fighting. I'm talking about illegal pipe cuttings. Physical theft of oil in volumes of millions of tons is unknown to me.”
Further, Mr. Khodorkovsky reminded the witness that in 2005 the Prosecutor General's Office publicly announced thefts in the companies Yuganskneftegaz, Samaraneftegaz, Tomskneft in the period from 1998 to 2003. “In 2007, this topic was addressed directly to you,” the defendant said. - You were informed about this fact signed by Mr. Grin, they asked for some information. According to the Law “On Accounting”, if facts of theft are discovered, an inventory must be carried out. We are talking about a very large volume - 350 million tons. Was an inventory carried out at Rosneft, as the legal successor of Yuganskneftegaz, at Samaraneftegaz, and Tomskneft, what did these actions reveal, were changes made to state statistical reporting related to the detection of theft?” The minister knew nothing about this. He also did not know whether any changes were made to the statistical reporting of Goskomstat in connection with the loss of a large volume of oil.
Judge Viktor Danilkin removed Mikhail Khodorkovsky's last question. And it sounded like this: “Viktor Borisovich, what is the government’s position regarding taxes on stolen goods? If it is established that oil was stolen from YUKOS, that is, the income was received not by YUKOS, but by individuals, then the state will return all taxes claimed from YUKOS?”
It was the prosecutors' turn to ask their questions to the high-ranking witness. In particular, Mr. Khristenko spent a long time explaining how market prices differ from intracorporate prices, why the latter were not always “fair” in relation to the federal and regional budgets, as well as minority shareholders, and how the government dealt with this problem. “Does the parent company within the holding have the right to give instructions and set prices for subsidiaries?” - asked prosecutor Vyacheslav Smirnov. “If it complies with the law, then yes. If the law is violated, then no. Everything must comply with tax legislation, shareholder legislation in relation to the interests of minority shareholders, which could be the state,” answered Mr. Khristenko. The witness, in addition, refuted the prosecutors’ assertion that oil traders that existed on the foreign market “were a prerequisite for the withdrawal of profits outside the Russian Federation.” In addition, the minister did not agree with prosecutors that these oil traders did not actually conduct any business activities (that is, they were fictitious companies allegedly created by Khodorkovsky and Lebedev). “This is also quite a troublesome activity. This service is associated with great difficulties; it is professional work with insurance, financial structures, etc. Like any service, this one also costs money. Yes, this is not a production and technological activity in the industrial sense, but it is no less necessary and respected,” he said.
After the end of the interrogation, which lasted about three hours, the minister refused to comment. “Everything was available to you, you heard everything,” he told reporters, going down the stairs to the exit. In turn, the defendants' defense stated that they were satisfied with his testimony. “We are certainly satisfied with the answers we heard from Khristenko. He answered quite thoroughly and to the point. “What we have heard completely destroys the charge in relation to the alleged theft of oil through the use of price differences,” said Mr. Lebedev’s lawyer, Konstantin Rivkin. “It’s very good that an official of such rank as Khristenko appeared in court on a subpoena.”