Yukos affair damaging confidence in Russia: World Bank

The uncertainty surrounding beleaguered Russian oil giant Yukos is weighing on the economy because of the damage to investor confidence, the World Bank warned, almost a year since a politically-charged campaign against the firm began.

A Moscow court a day earlier backed a claim for 3.4 billion dollars (2.8-billion-euro) in back taxes against Yukos, opening the way for court bailiffs to seize company assets and threatening Russia's top oil producer with liquidation.


The ruling came two weeks after the fraud and tax evasion trial started of former Yukos chief executive Mikhail Khodorkovsky, Russia's richest man, whose arrest at gunpoint in October sparked fears of a wider assault against big business.


The July 2 arrest of another billionaire Yukos shareholder had marked the opening bell in the onslaught on Yukos.


Despite strong economic growth powered by high oil prices, "the picture is marred by the ongoing uncertainty over the fate of Yukos, leaving the first visible imprints on financial markets and short term capital flows," the World Bank said in its latest report on Russia.


"Is it a one off? As long as we have no answer to this question, Russia has a problem (of confidence). The key problem is destabilisation," the bank's chief economist for Russia, Christof Ruehl, told a news conference.


The campaign against Yukos and its top shareholders is widely seen as a Kremlin effort to crush Khodorkovsky, who had angered President Vladimir Putin with his political opposition and aggressive lobbying of economic interests in parliament.


The tycoon, among a handful of Russian businessmen who amassed their wealth in the early 1990s in dubious privatisations, was estimated to be worth 15.2 billion dollars this year by Forbes magazine.


The Yukos affair has caused alarm among foreign and domestic investors, concerned about growing state interference and the threat to private property rights with most analysts expecting Yukos to end up under effective government control.


In the worst case scenario, the tax bill could become "the tool the government uses to bankrupt Yukos," wiping out one of the most profitable Russian companies and dealing a hammer blow to investment sentiment, Moscow brokerage Renaissance Capital said Wednesday.


The only other likely outcome is a "negotiated capitulation" by Khodorkovsky and the other owners, ceding their stakes to government-linked interests, it added in a research note.


And though the less damaging result of the two, this prospect is not welcomed either by the worried business community because of the precedent it would establish.


"It's a tempting thought to mix private effectiveness and government ownership (of Yukos) but I don't think re-nationalisation is a good idea," said Ruehl.

HERE