Russia's Yukos Oil Company Up for Spoils

Just a year ago, Mikhail Khodorkovsky was widely recognized as Russia's most powerful tycoon and a top prospective presidential candidate.

Now the former CEO of the Yukos oil company spends hours a day in a cramped, stifling courtroom, listening wearily to a litany of charges against him.

The company he built, meanwhile, is awaiting a court ruling on a $3.4 billion tax claim that could drive it into bankruptcy unless the government agrees to a deal.

As the Kremlin's relentless crackdown on Yukos heads into the endgame, one thing seems clear: No matter what the outcome, the consequences on Russia's economy will be far-reaching.

Not since the collapse of the Soviet Union has a case raised more questions about the country's commitment to a free-market system — or the goals of its leader.

President Vladimir Putin has cast the Yukos affair as a straightforward anti-corruption effort. But the state's all-out assault on Khodorkovsky — who had openly used his fortune to amass political clout — is widely seen as a warning to big tycoons to stay out of politics.

Many Russians are pleased at any undoing of the post-communist privatizations that made a few fabulously wealthy — Khodorkovsky is Russia's richest man — while most people in what was once a proud superpower languished in poverty.

But to the country's much-needed investors, the case is a message that private property is not protected, and the collapse of such a large company could be prove destabilizing.

Putin sought to reassure investors last week, saying the government doesn't want Yukos to go bankrupt. While his efforts gave a powerful boost to Yukos stock, they also drew acerbic comments.

"What taxes, what justice?" Yulia Latynina, a top Russian columnist, wrote in the liberal Novaya Gazeta newspaper. "Yukos' fate depends on one person's word — that's what the markets said."

Khodorkovsky's interest in politics was reportedly seen by the Kremlin as a breach of an unwritten pact between Putin and Russian tycoons who owed their fortunes to the sellout of under-appraised state assets in the 1990s.

The oligarchs, as the tycoons were seen to be, were said to have received a promise that they could keep their property if they stayed out politics.

Before Khodorkovsky's troubles began, tycoons Vladimir Gusinsky and Boris Berezovsky defied Putin, saw their assets seized by the state and fled abroad. All three are Jews — a minority of less than 1 percent in today's Russia — and some observers see anti-Semitic undertones in the anti-oligarch campaign.

"There is quite a significant anti-Semitic element in all that," said Yevgeny Volk, the head of the Heritage Foundation's Moscow office. Putin's aides, who share his KGB background, "were trained in the atmosphere of anti-Semitism accompanying the Jewish emigration in the 1970s-1980s," Volk said.

Last week, Finance Minister Alexei Kudrin opened the way for a deal, saying Yukos could sell its assets to pay back taxes.

Some observers say that striking a deal with the government could help Khodorkovsky get leniency in his trial on fraud and tax evasion charges that began last week. He could face 10 years in prison.

"The authorities expect Khodorkovsky to repent and acknowledge his guilt," Volk said.

Khodorkovsky and his partners still control Yukos through Group Menatep, a holding company. A Menatep spokesman said the company's owners were willing to guarantee payment of a portion of Yukos' tax debts.

"That means the core shareholders don't want the company to go bankrupt," Yuri Kotler, a Menatep spokesman, told The Associated Press.

Yukos deputy CEO, Yuri Beilin, said that a 35 percent stake in the Sibneft oil company would probably be the first Yukos asset to go on sale.

Yukos gained control over Sibneft shortly before its troubles began last summer, but the merger that would have created the world's fourth-largest oil company was later annulled as Sibneft owner Roman Abramovich sought to distance himself from Yukos.

Selling the remaining stock in Sibneft, which it bought for $3 billion, could provide a relatively painless bailout for Yukos, assuming the government wants a deal.

Meanwhile, an appeals court continued to consider the government's tax claim against Yukos, which would clear the way for confiscating Yukos assets.

Some analysts said Russia's state-controlled Lukoil and Rosneft oil companies and Gazprom natural gas monopoly would welcome Yukos' bankruptcy because it could give them the company's assets for a song.

"Why would they pay $3 billion for a 20 percent stock (in Yukos) if they have a chance to get all of it for nothing?" Latynina said.

Others argued bankruptcy proceedings against the oil giant would tarnish the nation's image, rattle the markets and slow down growth in the oil sector — Russia's main cash earner.

If the state does go ahead with bankruptcy, it could be hijacked by Group Menatep, which as Yukos' largest creditor would have more power in the creditors' committee than the government.

Few doubt, though, that the state will claim control over Yukos one way or another.

"The Yukos affair has illustrated all too clearly the limited protection of property rights in Russia," said Stephen Jennings, the CEO of Renaissance Capital investment bank.


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