Putin aide attends Khodorkovsky trial

Moscow, Russia, Dec. 31 (UPI) -- A top aide to President Vladimir Putin visited the trial of Mikhail Khodorkovsky Friday, Interfax news agency reported.

Presidential adviser Andrei Illarionov showed up at Moscow's Meshchansky Court for the trial of the founder, chief shareholder and former CEO of the Yukos oil corporation and his business associate, Platon Lebedev, as an ordinary visitor, Khodorkovsky's lawyer Genrikh Padva told Interfax.

A recess has been announced in the hearings until Jan. 11. At the next hearings, the defendants' lawyers will continue to present their arguments, the news agency said.

Khodorkovsky, who previously funded media outlets and political movements strongly critical of Putin, is charged with massive fraud and tax evasion. He could face 10 to 15 years in jail if convicted.

(UPI via The Washington Times, 12.31.2004)

PROPERTY AND FREEDOM

Unmanageable Democracy After Yukos
By Mikhail Khodorkovsky, Msocow Times 29/12/04
Dec 29, 2004, 09:04

The events surrounding Yukos had a direct relationship to state power. What will happen to state power after Yukos is an extremely important question.

It has long been said that every nation gets the government it deserves. I would like to add that every government is the reflection of its people's conception of the nature of power. Thus, we can argue that whether in Britain, Saudi Arabia or Zimbabwe, power everywhere belongs to the people. The traditional concepts of power are the foundation of any government's stability. That is why it is just as absurd to talk about the Western-style "democratization" of certain Arab monarchies as it is to talk about the restoration of medieval absolute monarchy in today's Denmark.

Russian political traditions are in many ways syncretic. Russia has always stood at the edge of various civilizations, yet it is predominantly European. For this reason, European political institutions, which assume a division of powers, are absolutely natural for Russia.

However, we cannot ignore the other side of the coin. The Russian people are used to relating to the government as a higher power granting them hope and faith. This power cannot be put to work, as it would then cease to be a higher power. As Russian history demonstrates, the loss of this unique, irrational worship of the state unavoidably and invariably leads our country to chaos, revolt and revolution.

We must be careful not to confuse "power" with "administration." Officials administer and are not sacred cows. Bureaucrats are mere mortals obliged to take responsibility for all the problems and protocols.

The destruction of Yukos shows that the bureaucrats who have now been set in motion are not ruled by the interests of the state as an eternal, and therefore all-powerful, phenomenon. They simply believe that the state machine exists to serve their own interests and that all its other functions should be temporarily -- or perhaps permanently -- cast aside as superfluous. They do not have the least bit of respect for the state, which they only see as a means of achieving their personal ends.

This is why the Yukos affair is not a conflict between business and state, but a politically and commercially motivated attack launched by one business, represented by officials, against another. The state has fallen hostage to the interests of particular individuals who happen to have authority as civil servants.

Following this logic, officials have resolved to destroy the division of powers in the government. The model they are armed with assumes that politicians should be put on a par with state officials and that all politics should be reduced to career moves in the narrow framework of a bureaucratic corporation.

Why are they doing this? To mobilize the nation and lead it to new historical achievements? No one closely tied to the Kremlin who believes what it says would agree with this goal. In private conversation behind closed doors, officials say just the opposite, that if the division of powers is eliminated, it will be easier for bureaucrats to gather up the country's money and divide it according to their own notions, without looking twice at the needs and interests of others. That, plain and simple, is why.

Another question is whether this new system will operate efficiently and whether it will allow its architects to accomplish their much-coveted goal. The answer is no. As a result of this attempt at "increased manageability," Russia may become completely unmanageable.

Why? Because there are age-old laws governing how complex systems function and rules governing state power.

Power always assumes that the rulers and the ruled have a common motivation. This motivation can vary, ranging from building communism to a general and banal desire for wealth. Yet it must exist and be genuinely shared by all.

The dull and vapid officials living according to the principle of "Mine! Mine! Mine!" have no concept of such motivations. In fact, they cannot grasp why they must exist at all. This is precisely why they are consistently destroying everything that might allow Russians to realize themselves: free elections, market competition and the right to speak freely and openly.

No true patriots will give their lives for a bunch of bureaucrats who are only interested in their incomes. No true poets will praise them in verse. No true academics will strive to make more discoveries in an environment where no one cares at all about genius.

Very soon, the natural counterpart of this all-consuming bureaucracy will appear, the enraged and shapeless mob. The mob will take to the streets saying, "You promised bread and a circus! Now where are they?!" And they will not be placated by officials ironically waving a stack of old office documents under their noses. Russia will then see unmanaged democracy with all its innumerable tragedies and woes. This is what we should be striving to avoid.

Of course, I would like to participate in making Russia free and prosperous. But I am willing to wait if the authorities decide to leave me in jail.

As a common post-Soviet prisoner, I pity the greedy people who acted so rudely and senselessly toward the tens of thousands of Yukos shareholders. Before them lie years spent in fear of the next generation of people eager to take away and divide up their riches and in fear of true justice, not the false justice of the Basmanny district court. Only a few extremely naive viewers of state-controlled Channel One still think that everything happened in the interest of the nation.

I feel even more pity for those in power who honestly believe that they have done something good for their country and their people. The road to hell is paved with good intentions. The logic of history shows that farther on down this road they will be forced to admit that repressive politics, the redivision of property by force to serve the interests of particular cliques and the task of creating a modern economy cannot be combined. They will not succeed in limiting this machine to just me, Yukos or the oligarchs. There will be many other victims, including the very people who created this machine.

My persecutors know all too well that there is not a single piece of evidence of my guilt in their legal case against me, but that's no obstacle. They will find other accusations and charge, for example, that I burned down Moscow's Manezh or planned an economic coup. They have conveyed one very important point: They want me locked up as far away as possible for at least five years because they fear I will take revenge.

These simpletons are judging everyone else according to their own experience. Relax: I have no intention of becoming the next Count of Monte Cristo. Breathing fresh spring air, playing with my children who will go to regular Moscow schools and reading good books all seem far more important, right and pleasant than dividing up property or settling scores with my own past.

I thank God that in contrast to my persecutors I have understood that earning more money is not the only -- and certainly not the most important -- point of human endeavor.

For me, the time of big money is now in the past. Now, freed from the burdens of the past, I hope to work for the good of the coming generations that will soon inherit our country, the generations that will bring with them new values and new hopes.

(The Moscow Times, 12.29.2004)
_____

I guess this translation is a bit better. The beggining is missing :-/

PROPERTY AND FREEDOM

The destruction of YUKOS is approaching its completion. I'vedone all I could to prevent the regime's dislike of myself fromaffecting minority shareholders, YUKOS employees, and Russia assuch.

Six months ago, I offered to hand over my own stake in YUKOS aspayment of the tax claims against the company. But the other sidechose a different path: the path of selective application of thelaw, introducing new provisions and constructs, the publicdestruction of the first green shoots of business confidence in thearbitration court and government in general.

It is now clear that more is involved than political interestsalone. Some other interests must have been present right from thestart, since the methods of promoting these interests affect thereputation of the regime and the national economy. Yet it seems thatwhoever initiated all this doesn't care.

The future of YUKOS is no longer the issue. The company isprobably finished. The question now is what lessons the nation andsociety will learn from the YUKOS affair - with its culminationbeing the most senseless and economically destructive incident inall of Vladimir Putin's years as president.

Forbes magazine once estimated my fortune at $15 billion. Yes,the last twelve months have transformed this into somethingapproaching zero, and zero will be reached soon enough. I saw it was coming to this; I only asked that the YUKOS company itself and itsminority shareholders should not suffer. I felt a sense of duty to150,000 employees, their 500,000 family members, and the 30 millionresidents of the towns that depend on YUKOS for jobs.

All along, I have felt for the tens of thousands of YUKOS shareholders who once decided that Khodorkovsky and his team could be trusted. Their decision was sound until very recently.

When my team and I came to YUKOS in 1995, the company was in the red; wage backlogs stretched back six months, and the company owed almost $3 billion to creditors. YUKOS was operating in only nine regions of Russia,producing 40 million tons of oil a year; and production was steadily declining. By 2003, YUKOS was operating in 50 Russian regions. Annual oil output was 80 million tons and rising. YUKOS paid its employees handsomely - 7,000 rubles a month in the European part of Russia andup to 30,000 rubles a month in Siberia.

As this decade opened, YUKOS was Russia's second-largest taxpayer (after Gazprom). Its taxes amounted to almost 5% of federal budget revenues.

I don't wish to dwell on what kind of bold imagination it took to invent back taxes claims against YUKOS. (If we believe thespecialists from the Taxes and Duties Ministry, the tax payments of YUKOS ought to have exceeded its revenues.) Such methods will certainly find their way into in textbooks on taxation, because they prove that oil production in Russia is unprofitable.

It doesn't take a genius to guess that state officials will stop at nothing in their pursuit of property redistribution.

This may sound strange to many, but parting with what belongs to me is not going to hurt me intolerably.

I know already that property - especially major property - initself doesn't make a person free.

It was not just a case of me managing my property. The property was also managing me. I'm in a new capacity now. I'm an ordinary person now (uppermiddle class, from the economic point of view).

What is happening to YUKOS is inseparable from the regime. What will happen to the regime when YUKOS is no more is indeed an important question.

It is common knowledge that every people gets the rulers it deserves. I can only add that any regime reflects the people's concentrated ideas on the nature of political power. That is why it is possible to say that government in Britain, Saudi Arabia, and Zimbabwe belongs to the people. The tradition of accepting government is what the stability of any state depends on. That is why speaking of some Arab monarchies being democratized according to Western standards is just as absurd as speaking of restoring a medieval absolute monarchy in modern Denmark.

From this point of view, the Russian political tradition is synthetic. Russia has always been on the boundary between civilizations (it is there even now), but it is mostly a European country. That is why European political institutions, stipulating separation of powers, are entirely natural for Russia.

But the other side of the matter must not be ignored either. The people in Russia are used to viewing the state as the supreme agency that offers hope and faith.

This agency can not be seen to be for hire - for then people would stop regarding it as supreme. Russian history teaches us, however, that the loss of that special,non-rational respect for the state inevitably and invariably leadsto chaos, rebellion, and revolution.

The destruction of YUKOS shows that the unrestrained bureaucrats care nothing for the interests of the state, eternal and therefore powerful. They only know that the state machinery exists to promote their interests, and that its other functions are abandoned as unnecessary - for a while, or permanently. They feel no respect for the state, which they regard only as a mechanism of promoting their personal objectives.

That is why the YUKOS affair is not a conflict between business and government. It is a politically and commercially motivated attack by one company (represented by state officials) on another company. The state, in this particular case, is a hostage to the interests of certain individuals wielding the powers of state officials.

Following the same logic, the bureaucracy set out to do away with separation of powers. The chosen model implies that every politician will now be equal to a state official. Participation inpolitics will be restricted to promotion of careers within theconfines of the bureaucratic corporation.

Why is this being done? To mobilize the nation? No one who isclose to the halls of power and who really believes in what he is saying will swallow that. Off the record, he is likely to tell the truth: abolishing the separation of powers will make it easier for bureaucrats to collect money from the country and divide it inaccordance with their own needs and interests. As simple as that.

Will this system be effective? Will it bring its architects to their coveted goal? No. Steps aimed at improving manageability may leave Russia absolutely unmanageable.

Yes, I would like to participate in the process of making our country prosperous and free. And yet I'm prepared to endure imprisonment if that is what the authorities decide.

As an ordinary post-Soviet prisoner, I pity the greedy people who have acted so crudely and senselessly towards the minority shareholders of YUKOS. They will now face years of fearing the new generations of people eager to confiscate and redistribute, and fear of true justice. Because only the naive viewers of national television networks can still cling to the belief that what is happening is being done in the public interest.

I pity even more those in the halls of power who earnestly and sincerely believe that they are doing this for the people and the nation. The road to hell is paved with good intentions - that much we know. These people will eventually understand that oppressive methods in politics, and redistribution of property by force, are incompatible with construction of a modern economy. Besides, this entire mechanism will not be content with Khodorkovsky and YUKOS alone. Others, including its architects, will eventually fall victim to it. My oppressors know that there isn't any solid evidence at all in the criminal case against me - but that doesn't matter. I could always be charged with setting fire to the Manezh building, or plotting an economic counter-revolution. I have been told that the authorities want to keep me in jail for as long as possible: fiveyears, say, or longer. They fear that I will seek revenge.

Translated by A. Ignatkin
_________

NB : I have found no satisfying nor complete translation of Khodorkovsky's paper. This one is no exception, it is very plain and colorless :-(

Ex-Yukos Head Khodorkovsky Warns Putin From Jail

The Kremlin may have destroyed Yukos but it has inflicted “senseless” damage on Russia’s economy in the process, jailed tycoon Mikhail Khodorkovsky said in comments published on Tuesday.

The former chief executive of Yukos said he had come to terms with a future of several years in jail and knew there was little chance of saving the firm he founded, now going under the hammer to pay vast tax debts. “Many people might think this odd, but parting with my property will not be unbearably painful for me,” he said in a wistful article in Vedomosti business daily.

“Like many, many prisoners before me, both well-known and unknown, I should say ’thank you’ to prison. It has given me months of intense contemplation, a time to re-examine the many sides of life.” In a long and philosophical look at his predicament and that of President Vladimir Putin’s Russia, the man once said to be Russia’s richest billionaire said the bureaucracy had moved from serving the government to running it.

“The question is what lessons the country will take from the Yukos affair, whose finale is the most senseless and destructive event for the economy in all of President Vladimir Putin’s time in power… No true patriot would give his life for a bunch of bureaucrats who are only interested in feathering their own nests,” he wrote.

Khodorkovsky, writing under the headline “Property and Freedom”, said he was happier without his fortune, once put at $15 billion —- making him Russia’s richest person. “I have realised that wealth on its own, especially vast wealth, in no way makes a person free... I had to close my eyes to a lot of things, and make my peace with a lot, for the sake of my wealth, to keep it and grow it. I didn’t just run my property, it ran me.

”I would like to warn the young people of today, those who will soon be in positions of power. Don’t be jealous of wealthy people ... Wealth opens new avenues, but it enslaves your creative faculties and takes over your personality,“ he said.

Khodorkovsky’s demise is widely seen as a Kremlin-orchestrated campaign to punish him for his political ambitions and renationalise prized oil assets that he won in shady privatisations during the 1990s. But his long critique of Putin’s policies —- in parts reading like an embryonic political manifesto —- did not end in any clear challenge.

”I would, of course, like to help our country to flourish and become free. But I am willing to wait, if the authorities decide to keep me in prison,“ he wrote.

And drawing a parallel with the hero of Alexandre Dumas’ romantic novel about a man who is wrongly imprisoned by his rivals, Khodorkovsky had a reassuring word for his enemies. ”They want to put me away, far away, for five years or more, because they are afraid I will take revenge. These small-minded people think everyone lives by their rules. But don’t worry, I’m not planning to become the Count of Monte Cristo.“

(Mosnews, 12.28.2004)

Demise of Yukos May Undermine Democracy in Russia — Khodorkovsky

Mikhail Khodorkovsky, former CEO and main shareholder of Yukos oil company, has warned of the impact the ruin of the company may have on democracy in Russia and the country’s economy.

“The fate of Yukos is not the point at issue today. It will hardly be possible to save the company. What counts most is what lessons the country and society will learn from the Yukos affair,” Khodorkovsky said in an article entitled Property and Freedom, published in the Vedomosti newspaper on Tuesday.

“Repressive methods in politics, a forced redistribution of property in the interests of some group, and the task of building a modern economy are incompatible, and this mechanism will not restrict itself only to Khodorkovsky, Yukos and the oligarchs. Many other people, including today’s ’architects and builders’, will fall victim to it,” he said.

In the Yukos affair, the state was “taken hostage by the interests of specific private individuals holding the powers of civil servants,” Khodorkovsky said.

(Mosnews, 12.28.2004)

Putin aide slams Yukos sell-off

President Vladimir Putin's economic adviser has bitterly criticised the dismantling of the Russian oil giant Yukos, crippled by tax demands.
Andrei Illarionov blasted "the state's incompetent interference in the economy", at a Moscow news conference.

"There are no rules," he lamented, adding that Russia had decided to join the Third World.

Speaking from prison, the firm's ex-boss Mikhail Khodorkovsky accused the Kremlin of "senseless" actions.

Mr Illarionov, whose views often contrast with those of top Russian government officials, said the country had changed its model of economic development.

'Scam of the year'

"A transition has been made... to the interventionist trend. This model implies the state's extremely incompetent interference in the economy," he said.

He denounced the recent forced sale of the main Yukos production unit, Yuganskneftegaz, as "the scam of the year".

"We used to see street hustlers do this kind of thing. Now officials are doing it," Mr Illarionov said.

The Kremlin says its actions against Yukos are part of an anti-corruption drive.

Last week Russia's state-owned oil firm Rosneft bought 100% of Baikal Finance Group, an obscure firm that earlier bought the key Yukos production unit Yuganskneftegaz. The Rosneft move amounts to the renationalisation of a major slice of Russia's booming oil industry.

Yukos reiterated on Tuesday its intention to sue all organisations and individuals involved in the enforced auction of Yuganskneftegaz.

The company said it would seek damages of more than $20bn.

Earlier, President Putin said 2004 was a successful year for the Russian economy and insisted that the state had handled Yukos in a completely legal manner.

However, Mr Illarionov said Russia's economic growth had slowed significantly, as had the inflow of investment.

"The destruction of Yukos has led to the flight of foreign investors from this company, who have to move their assets into consortiums linked to the authorities," Mr Illarionov said.

Thoughts from jail

Meanwhile, ex-Yukos boss Mikhail Khodorkovsky has spoken to the Russian daily Vedomosti from prison, saying there is almost no chance to save the company, following the controversial sale of Yuganskneftegaz.

"The question is what lessons the country will take from the Yukos affair, whose finale is the most senseless and destructive event for the economy in all of President Vladimir Putin's time in power," he wrote.

He has been in prison since November 2003, waiting for the end of his trial on charges of massive fraud and tax evasion.

He told Vedomosti that "parting with my property will not be unbearably painful".

"I... should say thanks to the prison. It gave me time for intense contemplation and reassessing many aspects of life," he said.

Deprived of Yukos, he said he now felt like "an upper middle class man" who had preferred personal freedom to property.

"It is not a conflict between a business and the state. Rather it is an attack of one business represented by state officials on another. The state is a hostage to the interests of specific individuals."

He said he expected to spend another five years in prison after the trial.

(BBC News, 12.28.2004)

Yukos Manager Sacked by Local Government, Writes to Putin

A former acting director general of Yakutgazprom, the subsidiary of Yukos oil company, has been dismissed from his post. The new director general represents the government of Russia’s internal republic of Yakutia on the company’s board of directors, Ekho Moskvy radio station reported Monday.

Yevgeny Yazev had already written letters to the head of the oil and gas committee of the State Duma, and to the Russian president Vladimir Putin claiming a “forced seizure” of Yakutgazprom was planned, Regnum news agency reported.

Afanasy Maksimov, the president of Sakhaneftegaz, the main shareholder in Yakutgazprom, dismissed Yazev on Saturday with the support of Yakutia’s government. After that, Yazev, Pavel Khokhlov, vice president of Sakhaneftegaz, and other managers representing Yukos were forbidden from entering the company building. However, the agency reported citing Sakhaneftegaz sources that Khokhlov had been sacked in autumn.

Maksimov has headed Sakhaneftegaz since Nov. 6, after an invasion into the building. All Yukos managers who had worked in the company moved to the building of Yakutgazprom. Yazev was quoted by Regnum as saying at a press conference that he does not recognize Maksimov as president of Sakhaneftegaz.

The republican directorate of technological and ecological control had found Yazev not satisfying the company’s requirements and recommended he be dismissed. Yazev said it was an attempt to sack him “on far-fetched reasons”.

The governmental representative to the company, Ruslan Shipkov, has sent information on a meeting of Yakutgazprom board of directors to re-elect the director general and to approve an agreement on a pre-term annulment of a 2002 treaty between the company and the republic on use of state property without compensation. The board of directors of Sakhaneftegaz, the main shareholder of Yakutgazprom, has already made the decision to annul the treaty. Yazev said Shipkov is a common member of the board of directors of Yakutgazprom and not the chairman.

(Mosnews, 12.27.2004)

Just wanted to say - you have the possibility to send your wishes to Mikhail Khodorkovsky and Platon Lebedev by telegram. The adress is :

RUSSIA
674665, Chitinskaya Oblast
Krasnokamenskiy Rayon, Gorod Krasnokamensk,
Penitencial Colony YaG 14/10, 8 otryad,
To Khodorkovsky Mikhail Borisovich

or

RUSSIA
629420, YaNAO (Yamalo-Nenetskiy Avtonomniy Okrug),
Poselok Kharp, ul. Gagarina, d. 1A, FGU IK-3, otryad 12,
To Lebedev Platon Leonidovich, 1956 g.r.

You can even do it by internet if you have a credit card, there are some sites that allow you to send telegram to Russia.

Analysis: Putin pulls strings in Yugansk deal

By Martin Sieff
UPI Senior News Analyst


Washington, DC, Dec. 23 (UPI) -- The revelation that Rosneft is behind the Yugansk takeover confirms that Vladimir Putin is determined to establish strong state control over the Russian oil industry and its huge revenues to strengthen the Russian state. And contrary to conventional wisdom, his strategy may well work.


The Rosneft oil company revealed Wednesday that it was behind the mysterious Baikal Finans Group that conveniently emerged from nowhere to win the state-controlled auction Sunday of Yuganskneftegaz, also known as Yugansk, the core production unit of the Yukos oil corporation.

Rosneft has been the Russian oil company most favored by Putin and his siloviki -- his inner circle of advisers and policymakers from, or with strong links to, the state security services. Earlier this year, the Kremlin approved the merger of Rosneft with Gazprom, the largest natural gas producer and exporter in the world, to create a corporate colossus that would dominate the Russian energy industry.

Gazprom itself was Putin's first choice to buy Yugansk after its owner Yukos was shattered by a barrage of staggering claims in unpaid back taxes and other charges from Russian federal authorities. But Yukos lawyers won a court ruling in Houston, Texas, on Dec. 16 that granted an injunction against Sunday's auction and the companies, including Gazprom that had already entered into it.

That victory was short-lived. Baikal Finans Group and ultimately Rosneft were able to buy Yugansk for a song with Kremlin approval. Yugansk's value has been estimated at prices varying from $14 billion to $22 billion. Given the still enormously high global oil prices of $46 a barrel, 50 percent higher than they were eight months ago, the latter estimation is probably much nearer the mark. Yet Baikal Finans Group was able to pick up Yugansk for a song. They had to pay only $9.35 billion, for 76.6 percent of its shares.

With the Rosneft-Gazprom merger still looking as certain as an unstoppable juggernaut, Putin's strategy to smash the power of the most independent and disruptive billionaire oligarchs who seized control of most of the Russian economy after the collapse of communism appears close to fruition.

The destruction of Yukos, the largest oil corporation in Russia and one of the largest in the world, was the key battle in that economic war.

Yukos had won repeated plaudits in the West for seeking to make itself a model of accountability and transparency in contrast to so many other huge, oligarch-run Russian enterprises. But the Kremlin hit it with everything short of the Ten Plagues. And with Yugansk, an operating unit whose annual oil output was greater than that of the entire nation of Indonesia, now moving into safe, Kremlin-approved Rosneft control, all that remains of Yukos will be a hollow shell.

The Kremlin had to pay a considerable price for its victory. Projections of oil output for next year are somewhat down from previous hopes and this above all reflects the turmoil that Yukos and Yugansk have gone through this year.

Also, the drive to destroy Yukos created a huge disincentive for other major Russian corporations to adopt transparency and accountability. Even worse, the onslaught appears to have played the main role in triggering a new flight of capital from Russia this year. And while not enough to be ruinous or comparable with the negative capital flows of the 1990s, it represents a significant blow to Putin's hopes of stabilizing the economy and cutting poverty rates in half over the next decade.

However, Putin clearly deemed the costs acceptable of dismembering Yukos, and preferable by far that destruction to the alternative of letting the largest energy corporation in Russia remain in the hands of controllers who opposed his basic policies and were prepared to enter the political arena to try and undermine them.

Yukos' founder Mikhail Khodorkovksy, now on trial in a Moscow court charged with fraud and tax evasion, was Yukos' creator -- and the cause of problems. A financial and organizational genius, he made the elementary political mistake of bankrolling and trying to boost political opponents against Putin. He has now had 14 months sitting in a Moscow jail to realize the error of his ways.

Many Western accounts play down the political significance of Khodorkovsky's challenge to Putin last year. But there appears ample evidence that he did indeed harbor ambitions of funding a movement and a candidate who could either topple Putin in 2004 or succeed him in 2008. However, politics in Russia is a zero-sum game and control of the commanding heights of the new free-market economy cannot be separated from it.

The bottom line is that global oil prices remain today at around $46 a barrel. That is significantly down from the unprecedented $54 a barrel they reached a few weeks ago, but it is still an amazingly high price by anyone's standards, and the worse the guerrilla war in Iraq gets, the higher they will go.

As a result, foreign capital and currency continues to flood into Russia and Putin has been able to negotiate lucrative oil-export deals with the great energy-hungry economies of China and South Korea on his own terms. The destruction of Yukos certainly does not appear to have deterred the French. It has not deterred the British either. British Petroleum appears unfazed -- indeed it is grateful and relieved for its continued involvement in the Russian oil industry.

The idea that divesting Khodorkovsky of control of Yukos would plunge the management of its resources back to the dark ages appears to be wishful thinking, too, as unfounded as the many Western pundits in the mid-1950s who predicted that Egyptian officials would be unable to maintain the Suez Canal after President Gamal Abdel Nasser nationalized it in 1956. Instead, they ran it just fine.

As long as global oil prices remain above $30 a barrel, Russia will never want for foreign partners to pour in investment and know-how and help develop its oil. And if prices remain above $40 a barrel, as we correctly predicted in these columns back in April, Russia's current welcome flood of petrodollars will remain a tidal wave.

Saudi Arabia in the 1970s makes 21st century Russia look like a model of transparency, accountability and responsibility in its financial dealings. But the Saudis never lacked Western and East Asian investors ready to invest untold scores of billions of dollars into their country. And it is extremely unlikely that the Russians will either.

Putin has been systematically underestimated since rising to eminence, not merely for his toughness and ruthlessness, but also for his administrative and economic skills. Yet he reversed the centrifugal disintegration of the Russian state and the cataclysmic collapse in living standards that he inherited. Being underestimated now as he completes his far-reaching restructuring of the Russian energy industry will not bother or deter him either.

(UPI, via The Washington Times, 12.23.2004)

Back door Yukos nationalisation perfectly normal, says Putin

Vladimir Putin, the Russian president, launched a strong defence yesterday of the tactics used to renationalise the main assets of the oil group Yukos and lashed out at a US court's interference in the sale.
He said the Russian state was protecting its own interests in the deal, which saw the Yukos subsidiary Yuganskneftegaz auctioned on Sunday to an unknown firm called Baikal Finance and then almost immediately sold on to the state-owned energy group Rosneft.

"Today the state - using absolutely legal market mechanisms - is ensuring its interests. I consider this perfectly normal," Mr Putin said.

He then turned on the Houston court that is hearing Yukos's application for bankruptcy under US law. Last week the court ordered the Russian state-owned gas monopoly Gazprom not to enter the auction for Yuganskneftegaz, which accounts for about 1% of global oil production.

The Russian group attended the auction but stood aside, leaving the way clear for Baikal Finance - a company that shares its address with a grocery store in the provincial town of Tver.

On Wednesday, Baikal sold the operation to Rosneft, which is due to merge with Gazprom, for $9.4bn (£4.9bn) - about half of what western analysts reckon it is worth. The deal puts Rosneft almost level with Libya in terms of oil production.

Mr Putin said he was "amazed" by the Houston court's decision to ban Gazprom from the Yuganskneftegaz auction and accused it of failing to recognise Russia as a sovereign state.

"I am not even sure that [the judge] knows where Russia is located," Mr Putin is reported as saying.

The stance of the Houston court to the way the deal has unfolded could have serious implications. If the court decides that Gazprom did take part in the auction in defiance of its ban, it could order the seizure of Gazprom's oil and gas shipments once they had left Russian jurisdiction - a move that would prompt a huge diplomatic row.

The Yuganskneftegaz sale is the latest chapter in the complex battle between the Kremlin and Yukos's owner, Mikhail Khodorkovsky. The Russian authorities responded to Mr Khodorkovsky's political ambitions by hitting Yukos with a $27bn tax bill, plunging the group into crisis and leading to concerns among investors about the Kremlin's intentions.

(The Guardian, 12.24.2004)

Putin has harsh words for critics

By ALEX NICHOLSON, The Associated Press

MOSCOW -- President Vladimir Putin delivered a tough defense Thursday of the secretive transfer of the crumbling Yukos oil empire's most lucrative fields to a state company, adding acidly that a U.S. judge who sought to block the sale most likely couldn't find Russia on a map.
Dismissing critics' complaints as baseless, Putin said that Rosneft's acquisition of the mystery buyer of Yukos' biggest unit is in the state's interests -- and that the legal assault on the Yukos oil company was a long-overdue crackdown on a tycoon and his empire.

"Today, the state -- using absolutely legal, market mechanisms -- is ensuring its interests," Putin said. "I consider this perfectly normal."

State-oil company Rosneft announced late Wednesday it bought the previously unknown company that won Sunday's disputed auction of Yukos' Yuganskneftegaz unit. Yuganskneftegaz, which produces more than 10 percent of Russia's oil, or 1 percent of world output, was sold against its parent company's crippling $28 billion back tax bill.

Observers say the government's 18-month investigation of Yukos and its jailed founder, Mikhail Khodorkovsky, is a Kremlin power play aimed at neutralizing a political opponent and reclaiming influence in the crucial oil sector.

Yukos is desperately fighting the tax claims and the auction, which it says was held in violation of a U.S. court injunction issued last week.

The State Department said Thursday it was disappointed with the way the Kremlin handled the purchase of Yukos' assets, contending the action sends the wrong signal to foreign investors.

Putin said he was "amazed" by the injunction issued by U.S. Bankruptcy Judge Letitia Clark and assailed her decision.

"We must say that this kind of international relations-building doesn't suit us," he said.

"I'm not even sure that [the judge] knows where Russia is located," he said.

Analysts say the U.S. court decision stopped state-controlled gas giant Gazprom from buying Yuganskneftegaz outright, as had been expected. Instead, the day after the Houston ruling, a mystery bidder -- BaikalFinansGroup -- registered for the auction and later won it when Gazprom declined to bid.

Kakha Kiknavelidze, an oil and gas analyst at the Troika Dialog investment bank, said Rosneft should be safe from legal action by Yukos and its owners after buying BaikalFinansGroup. As a state-owned company, Rosneft would be sheltered by Russia's sovereign immunity to the decisions of foreign courts, he said.

"Moreover, it can be considered a bona fide buyer as it bought the stake in Yuganskneftegaz indirectly, after the auction took place," Kiknavelidze said.

By using a state-run oil company to acquire Yuganskneftegaz, the Kremlin has set the stage for the creation of a state energy giant under Gazprom. Rosneft, whose board chairman Igor Sechin is a longtime Putin adviser, is expected to be folded into Gazprom, the world's biggest gas producer.

With Yuganskneftegaz, Rosneft will have a combined oil output of at least 1.4 million barrels per day. The world's biggest oil producer, Exxon Mobil, has a daily output of 2.5 million barrels.

Observers have warned that the drive against Yukos and Khodorkovsky is hurting business confidence in Russia.

Despite the State Department's negative reaction, there was no indication the deal would mar President Bush's meeting in February with Putin or cause Bush to withdraw his support for Russia's entry in the World Trade Organization.

"We deal with Russia the way we deal with important friends and partners," deputy department spokesman Adam Ereli said.

(NewsObservers, 12.23.2004)

The Strange Yukos Sale

The White House deserves kudos for protesting Russian President Vladimir Putin's sale of the main production unit of the oil giant Yukos to a company that no one had ever heard of before. Sure, the rebuke came a full day after President Bush passed up a chance to publicly criticize his good friend, Mr. Putin, for the Kremlin's clumsy efforts to smother Yukos and other private enterprises in Russia, but at least it happened.

The tale is just about as sorry a story as business enterprise can get in Russia, and it keeps getting weirder. Mr. Putin, bent on destroying Yukos and its jailed founder, Mikhail Khodorkovsky, was preparing for what was to be the final swing of his dull ax, the "auction" of Yukos's most critical asset to Gazprom, the Russian state energy behemoth. But Yukos's remaining managers, now wisely living abroad, hit on the idea of filing for bankruptcy protection in Houston.

More amazing, the judge there issued an injunction against the auction. Russian authorities predictably jeered the ruling and declared that they were going ahead with the sale of the subsidiary, known by the catchy name Yuganskneftegaz.

Still, the ruling by Judge Letitia Clark had an immediate impact: Western banks, which had put together a multibillion-dollar loan for the sale, balked at defying an American court. When the auction opened last Sunday, the Gazprom representative suddenly had to leave to answer his cellphone. When he came back, the only bidder left was a shell company named Baikal Finans Group, which lists the address of a cellphone store 170 miles from Moscow.

Baikal picked up Yuganskneftegaz for only $500 million more than the starting price of $8.87 billion, which was already obscenely low for a company that pumps 11 percent of Russia's oil.

It hardly came as a surprise when Baikal was swiftly bought by Rosneft, a state-owned Russian oil company. From the jailing of Mr. Khodorkovsky in October 2003, through a progression of ever more ridiculous tax bills and made-for-TV searches, Mr. Putin has left little doubt that the goal is to get the Russian oil industry back into the hands of the state.

Nobody argues that Yukos, a product of the piratical privatizations of the early 1990's, is an innocent victim. Russia certainly can choose to nationalize the industry. But reversing a piratical privatization through a piratical nationalization only confirms that doing business in Russia remains highly risky.

The NewYork Times, 12.25.2004)

THE DEEP DRILLING OFFICE

President Putin covers the tracks of Yuganskneftegaz buyers
Author: Yulia Latynina
[What we are seeing in the Yuganskneftegaz case is a typical cover
operation. This was part of any KGB special operation: spreading a
fan of rumors to cover up what really happened. Those behind it
aren't very good at buying companies, but they do know how to
spread rumors and cover tracks.]
Only the president knows who bought the largest subsidiary of YUKOS

President Putin has vindicated Mikhail Khodorkovsky. Putin
said that the Yuganskneftegaz auction was carried out "strictly in
accordance with current Russian law."
As everyone knows, Khodorkovsky is charged with buying Apatit
via shell companies. To all appearances, the buyers of
Yuganskneftegaz studied the Khodorkovsky case carefully - and
plagiarized it.
Of course, the president himself has vouched for Baikal
Finance Group (Baikalfinansgrup): he said that its founders are
private individuals with extensive experience in the oil sector.
Speaking for myself, I was greatly relieved to hear the
president say that. Otherwise we might start worrying about how
Baikal Finance Group managed to raise its $1.7 billion deposit for
the auction; what if the money came from Osama bin Laden?
But President Putin has reassured me. It's not Osama bin
Laden's money. This money came from private individuals with
extensive experience in the oil sector.
And if these private individuals - whose identities are
unknown to the Russian public, but known to the president - do
have $9.3 billion to spare, they must have paid their taxes. After
all, it couldn't possibly be the case that the state is
confiscating Yuganskneftegaz from Khodorkovsky because he failed
to pay his taxes, only to hand over the company to some other
people who haven't paid their taxes either.
Apparently, these are the very same private individuals who
set up the Makoil company, which in turn registered Baikal Finance
Group.
I'm very happy for Makoil. This large oil company is so
authoritative that even its subsidiary has received special
treatment: Sberbank (the Savings Bank) transferred money into
Baikal Finance Group's account on a Sunday. (!) And not just any
money, but money from the Stabilization Fund, according to Viktor
Gerashchenko; in other words, federal budget money. True, I don't
know anything about Makoil myself. I've searched, but the closest
thing I could find was the well-known Makoi Bar on Rebellion
Square, where city prostitutes go to relax between clients.
But what does it matter that the Makoil company is unknown to
the general public? The important thing is that it's known to the
president. There are certain private individuals, after all, whose
jobs are both dangerous and difficult - and invisible, at first
glance. But whenever some oligarch fails to pay his taxes and buys
chunks of Russia via shell companies, those individuals are always
ready to come to the aid of law and order.

Why did they buy it?

There are two really interesting points in this whole story.
First: why was Yuganskneftegaz purchased via Baikal Finance Group?
One state official told me: "In order to evade the ruling of
the Houston court. Now the company that buys Yuganskneftegaz from
Baikal Finance Group will be considered to be buying it in good
faith."
But that's an ill-informed answer. The only way you can buy
stolen property in good faith is if you're not aware of it being
stolen at the time you buy it. In the wake of the Houston court's
decision, no one can buy Yuganskneftegaz in good faith.
A prominent lawyer told me: "Baikal Finance Group will fail
to pay the remainder of the purchase price, thus forfeiting its
deposit. But no repeat auction will be required, and
Yuganskneftegaz, as escheated property, will pass into the hands
of the state."
But that isn't an accurate answer either. In order for
Yuganskneftegaz to become state property, it would have sufficed
to declare the auction invalid. Russian law permits a repeat
auction to be held under such circumstances, but this is not
mandatory. There would have been no need to involve obscure
companies like Baikal Finance Group or Makoil.
I have a theory of my own. It's based on the idea that our
mystery buyers actually did study the economic intricacies of the
evidence presented by the prosecution in the Apatit case. There
they would have read about "a purchase made in good faith" - and
decided that if Gazprom could buy Yuganskneftegaz from Baikal
Finance Group, everything would be in order. But there was no
mention of Houston in the Apatit case materials.

A cover operation

The day after the auction, experts and analysts started
getting calls from their Kremlin sources. They were told of an
uproar within the Kremlin: because no one had expected Baikal
Finance Group to win the auction. Surely this had to be the work
of Roman Abramovich - he must have bribed someone, registered this
company, and struck this blow. "It's Abramovich!" cried the
market; although, strictly speaking, there was no reason to
conclude that Abramovich was involved. But there was every reason
to conclude that the Kremlin wanted people to think Abramovich was
behind this.
Then it was learned that Baikal Finance Group's
representative at the auction had been Igor Minibaev, a
Surgutneftegaz executive. "It's Surgutneftegaz!" cried the market;
although, strictly speaking, the fact that Surgutneftegaz
established the company that won the auction did not mean that
Surgutneftegaz had a share in the purchase. It's like a
businessman dining in the company of gangsters; even if he pays
for the meal, that doesn't mean he's in charge.
By Tuesday, the conclusive blow was struck by President Putin
himself. Of course it wasn't the Chinese who had bought
Yuganskneftegaz, he said; however, since the Chinese do have some
agreements with Gazprom, Putin "does not rule out the possibility
of the Chinese National Petroleum Corporation being involved in
the operations of that asset as well." And rumors swept the market
immediately: "It's the Chinese!" Although, strictly speaking, the
president had said nothing of the kind. All he said was that X had
not bought the house; however, since X is friends with Y, X might
visit the house for a cup of tea. Or maybe not.
It's interesting to note that what we are seeing is a typical
cover operation. This was an essential part of any KGB special
operation: spreading a fan of rumors to cover up what really
happened. "Is it Abramovich? No, it's not Abramovich; it's
Bogdanov." Then: "Is it Bogdanov? No, it's not Bogdanov; it's the
Chinese." And the head of state himself turned out to be involved
in the cover operation.
Why? For God's sake, why? Especially when everything's
perfectly clear anyway.
Because the professional skills of these buyers are of that
nature. They're not very good at buying companies, but they know
all about carrying out special operations.
The cover operation was carried out because the professional
skills of these buyers are of that nature. They're not very good
at buying companies, but they do know how to spread rumors and
cover tracks. They only failed to take into account that the head
of state might look silly covering someone's tracks at a press
conference, in front of television cameras.

Theft instead of justice

A few months ago, Mikhail Saakashvili, the new president of
Georgia, jailed the former president's son-in-law on the grounds
that his Magti mobile communications company had evaded taxes. And
Saakashvili didn't release the man until he handed over a
controlling interest in the company.
Yet the West isn't calling Saakashvili a dictator - for a
number of reasons. Firstly, Magti was notorious, and the former
president's son-in-law was known as the most corrupt tycoon in
Georgia. Secondly, he was released from jail immediately, and he
retained a decent stake in the company. Thirdly, and most
importantly: the controlling interest in Magti was sold at once to
people who had no previous involvement in the affair at all - some
Americans who made the highest offer.
For YUKOS, the situation is quite the opposite. Firstly, the
target of persecution was one of Russia's most transparent
companies. Secondly, the authorities rejected all of
Khodorkovsky's offers to part with YUKOS in exchange for keeping
the company together and respect for shareholders' rights.
Thirdly, the authorities sold Yuganskneftegaz to themselves: to
some private individuals whose identities seem to be a mystery to
everyone other than President Putin. In other words, it has been
conclusively proven that Mikhail Khodorkovsky was jailed not
because he committed crimes, but for the purpose of taking away
his property.

Comments

Alexei Kondaurov, Duma member, former manager of the analysis
department at YUKOS:
Everything about the auction seems obvious, and I have only
one question: why did they do it so clumsily? They could have
chosen to explain (not via the president, perhaps) that having an
unknown company buy Yuganskneftegaz was a necessary measure to
counteract the American court ruling, which posed a risk for
Gazprom. If they had done that, all this wouldn't have looked so
stupid. But they're doing it furtively, like an unofficial
organized group. Meanwhile, everyone understands that this is
being done by the state - which is still incapable of emerging
from the shadows, even though the president said long ago that it
should.
This deal was done entirely under "state protection." A minor
example: how could a bank transfer over a billion dollars to a
newly-created company, without alerting the Federal Financial
Monitoring Service? By law, the FFMS must take note of any
transaction over 600,000 rubles, and suspend it for three days if
it seems suspicious. But in this case, no action was taken - so
did they get a special phone call?
What can the Western business community make of the fact that
the major asset of Russia's most efficient company was sold in an
instant to an unknown buyer? The only conclusion they can draw is
that the situation in Russia is unpredictable for them.
* * *
Comment from the press center of the Federal Financial
Monitoring Service:
Yes, we are indeed notified of any transactions over 600,000
rubles, but we do have methodologies for identifying suspicious
deals. If everything is clean, no questions arise.
Question: Doesn't your methodology consider it suspicious
when a billion dollars is paid into the account of a newly-created
company, as in the case of Baikal Finance Group?
Answer: I might agree with you, but we are not making any
comments on that transaction at present.
* * *
Professor Yevgeny Yasin, research director at the Supreme
School of Economics:
It is already clear that Baikal Finance Group is a shell
company, especially created for the purpose of taking part in the
Yuganskneftegaz auction. It is a cover for the real purchaser: the
state. And now the state is considering which company should take
on the task of completing this maneuver. A solution will be found;
I have no doubt of that. It will be unlawful, that's all.
And maybe no money at all will be paid for Yuganskneftegaz.
It could be taken away at no cost! After all, the money is
supposed to go into the treasury, but it has not been factored
into the federal budget. Thus, there are opportunities for some
manipulation.
I have been informed that right from the start, the debate at
the top concerned this issue: should the property of YUKOS be
alienated lawfully, or simply expropriated? At the initial stage,
the former point of view prevailed. But now there's an opportunity
to take the latter path. In fact, this amounts to state robbery.
Each step the authorities take drags them into a chasm of
lawlessness and arbitrary actions.
Translated by Gregory Malyutin

(Original : Novaya Gazeta, 12.23.2004)

U.S. Dismayed by Latest Russian Moves on Yukos

The United States voiced dismay on Thursday at a Russian state-owned company’s takeover of the main production asset of the Yukos oil company, the Reuters news agency reports.

“We are disappointed in the way this case has been handled,” U.S. State Department spokesman Adam Ereli told reporters. “We certainly don’t think it’s been disposed of in a transparent or open way.”

Ereli said he was referring to state-owned Rosneft’s purchase of Yukos’ key production unit, Yuganskneftegaz, as well as to the entire tax case against Yukos, which is widely seen in Russia as a Kremlin effort to neutralize the firm’s politically ambitious principal owner Mikhail Khodorkovsky.

Russian prosecutors launched a tax evasion probe into Yukos in July 2003 and three months later snatched Khodorkovsky at gunpoint from his jet in Siberia, charged him with fraud and tax evasion and sent him to prison, where he remains.

Rosneft acquired Yukos’ Yuganskneftegaz unit from Baikal Finance Group, an unknown shell company that won an auction ordered by the government to collect back taxes from Yukos.

“It sends the wrong signal to foreign investors and could negatively impact Russia’s role in the global economy,” Ereli said. “The way this case was handled raises serious concerns about the way rule of law is applied in Russia and the way that justice is perhaps politically or selectively applied.”

While Washington has voiced concerns about the Yukos case for more than a year, as well as about Russian democracy, critics accuse it of soft-pedaling the issues because of the U.S. desire for Russian cooperation in the war on terrorism.

Ereli denied this, but acknowledged that the U.S.-Russian relationship is complex with many interests.

“There is no contradiction between being an important partner and friend and speaking our mind, and calling a spade a spade, and telling Russia when we are disturbed and troubled and making clear to Russia what we think is the right course of action,” he said.

At a year-end news conference, Russian President Vladimir Putin defended the Rosneft purchase and complained about past U.S. criticisms, saying “I have to say I am not ecstatic about everything that happens in the United States either.”

Putin also suggested Washington was trying to “isolate” Russia, an idea that Ereli dismissed, citing their joint work on the Middle East, North Korea, the Balkans and elsewhere.

(Mosnews, 12.24.2004)

Putin attacks US in fierce defence of Yukos takeover

By Carl Mortished, International Business Editor



VLADIMIR PUTIN, the Russian President, yesterday poured scorn on the US legal system when he defended the takeover of Yuganskneftegaz, the Yukos oil production unit, by Rosneft, the Russian state oil company.
Angered by attempts to block the sale in Houston using Chapter 11 insolvency, the Russian leader said that the US court’s bankruptcy order was “unacceptable” and failed to recognise Russia’s sovereignty. “I’m not even sure that she (the judge) knows where Russia is located,” he said.

In a surprise move late on Wednesday, Rosneft acquired Baikal Finance Group, the mysterious vehicle that emerged on Sunday as the owner of Yugansk, bidding $9.3 billion (£4.8 billion) for the Yukos subsidiary, little more than half its estimated value. Gazprom, the giant gas utility confirmed that its takeover of Rosneft would go ahead, creating the prospect that the world’s largest gas producer would soon become a giant oil company producing almost 1.6 million barrels a day.

Yugansk was auctioned by the state to settle tax claims totalling $27 billion, which are rejected as bogus by the shareholders of Yukos.

However, President Putin defended the state’s actions as “absolutely legal, market mechanisms” and instead criticised Russia’s oligarchs, friends of the former president Boris Yeltsin. He said: “Some market participants got multibillion state assets using different tricks, including some violations of then existing legislation.” His criticism will be seen in Russia as a reference to Mikhail Khodorkovsky, the principal Yukos shareholder, who is in jail facing charges of tax evasion.

The Kremlin’s action has drawn little response in world capitals. Stuart Eizenstat, the former US Deputy Treasury Secretary, said that the Russian president was “getting away with one of the greatest corporate thefts in history”.

He said: “The reaction of Germany, France and the US has been: let the Russians be Russians, we have our political and economic interests there.”

(The Times, 12.24.2004)

Gazpromneft Is in No Hurry to Leave

Gazprom will not call off the merger deal with Rosneft because of the situation with Yuganskneftegaz. Gazprom CEO Aleksey Miller confirmed this information yesterday. A new plan for taking over the oil company will be implemented, although the details of this plan are still unknown even to the government. It is not inconceivable that OOO Gazpromneft, which was sold by Gazprom to unknown persons, will play an important role in this plan.


The first meeting of Gazprom's board of directors after the sale of Gazpromneft is scheduled for today. As expected earlier, the board is to give post factum approval of the sale, which Gazprom's management made on December 20. Yesterday, however, two government officials – Minister of Economic Development and Trade German Gref and Minister of Energy Viktor Khristenko – said that so far they had not received any materials from Gazprom regarding the upcoming board meeting. What is more, according to a report from Gazprom's press service, the agenda of today's meeting contains no questions relating to the new options for merging Gazprom and Rosneft or items connected with a reversal of the decisions on Gazpromneft already made.

Without a reversal by the board, all of Gazprom's previous orders concerning Gazpromneft remain in force. It is still not known whether any of Gazprom's managers signed an order to transfer 10.7% of Gazprom's shares to the fixed assets of Gazpromneft and at what price. If such a document exists, Gazpromneft's new owners could well apply to buy up these shares at the price specified in the order and privatize Rosneft without Gazprom's participation. Officially, it makes no difference to the government where they get 10.7% of the gas monopoly's shares to establish control over Gazprom.

According to Viktor Khristenko, the question of deals involving Gazprom's property is within the competence of the board, and the board, together with the Russian government, must approve a new merger strategy for Gazprom and Rosneft. Finance Minister Aleksey Kudrin expressed concern about the situation and spoke of a $7 billion reduction in Gazprom's capitalization. The minister believes that “the opaque actions of the government”, of which he himself is a member, are to blame for this. Thus, a “revolt of the government representatives” at today's board of directors meeting cannot be ruled out – they will probably demand the disclosure of information on exactly how Gazprom intends to merge with Rosneft in future and who got Gazpromneft.

Whether German Gref, Viktor Khristenko, and other government representatives on the board will receive answers to their questions is unknown. Especially since the future of Gazpromneft is unclear – no information about its liquidation has been confirmed. A source close to Gazprom's management told Kommersant yesterday that Gazpromneft's new owners have no plans to liquidate it: it will simply be renamed and may subsequently participate in the formation of a new oil company based on the oil assets of Gazprom and Rosneft.

We note that Aleksey Miller, who is on a visit to France, first commented on the situation around the sale of Gazpromneft yesterday, but his statement did not clarify anything. At a meeting with French Prime Minister Jean-Pierre Raffarin and president of Gaz de France, Jean Francois Cirelli, he said: “Gazprom is approaching the final stage of the merger with Rosneft, after which the company will be able to work much more actively with French companies on both oil and gas projects”.

( Kommersant, 12.23.2004)

YUKOS Warns Mikhail Fradkov

Steven Theede, YUKOS-Moscow president, sent another letter to Prime Minister Mikhail Fradkov yesterday asking to settle the situation around YUKOS (in the past year, the company has sent more than 70 letters on this subject to government officials of various levels). Mr. Theede advised the prime minister that YUKOS and its shareholders were preparing lawsuits against the future owner of Yuganskneftegaz. The letter was evidently sent in connection with the consideration of YUKOS's case in Houston, where the next hearings began yesterday evening (Moscow time).

According to Kommersant sources at YUKOS, Steven Theede, who is in the United States, informed Mikhail Fradkov on behalf of the management of YUKOS-Moscow that YUKOS has requested the Russian Federal Property Fund (RFFI) to “provide it with information on the full registration data of the winner of the Yuganskneftegaz auction – OOO Baikal Finance Group (the company appears under this name in RFFI documents; it is registered in the tax services as Baikalfinansdgrup – Kommersant) –and on its actual owners or beneficiaries, as well as to indicate where the funds Baikal Finance Group paid as a deposit were generated, and if it pays for the shares – information on the sources of these funds”.

YUKOS needs this information to begin prosecuting the owners of Baikal Finance Group and those who ,provide it with the funds to buy Yuganskneftegaz ($9.3 billion, including the deposit). However, according to Kommersant's information, the RFFI has data on Baikal Finance Group only from December 3, the date the company was formed. Its founder is OOO MAKoil, owned by three individuals – Georgy Zhernokov, Viktor Panichev, and Igor Kuzmuchenko. However, the day before the auction, Baikal Finance Group probably changed owners, as happened with the other auction participant, OOO Gazpromneft.

If Baikal Finance Group does not pay the full amount and the shares of YUKOS's main production division are transferred to state ownership (Aleksandr Buksman, the head of the Ministry of Justice's main office in Moscow, spoke of that possibility after the auction), YUKOS and its shareholders will take the Russian government to court.

After outlining YUKOS's future actions, Mr. Theede asked Prime Minister Fradkov to return to an examination of the company's previous proposals for restructuring the tax arrears and repaying them out of revenues from day-to-day operations and sales of nonspecialized assets at fair market prices, as well as in shares of YUKOS's principal shareholders (Kommersant has written about this on a number of occasions).

The letter's timing was fortuitous for YUKOS – yesterday evening, the bankruptcy court in Houston, Texas began the next hearings in the YUKOS case. We remind our readers that the day before the Yuganskneftegaz auction, bankruptcy judge Letitia Clark imposed a moratorium on operations with YUKOS's property.

Kommersant has learned that yesterday lawyers of the American firm Fulbright&Jaworsky representing YUKOS filed several applications in court. This became known from a letter sent by Fulbright&Jaworsky lawyer Zack Clement to all interested parties, including the RF Ministry of Justice, Gazprom, the head of the consular division of the Russian Embassy in Washington, Vadim Savelev, and the director of the Ministry of Justice's special consular services department in the US, Edvard Betankort. In these applications, YUKOS's lawyers request Judge Letitia Clark to allow the company to conduct its business and to “issue an interim order allowing existing bank accounts to stay in operation and the continued use of the existing system of monetary transactions”. This means that YUKOS is asking for the release of its accounts frozen by the Russian Federal Bailiff Service.

Although the decisions of the American court have no legal force in Russia, they could lead to seizure of the foreign property of the auction winner and those who assisted in the acquisition, e.g., banks that granted loans for the purchase. Since Baikal Finance Group's deposit for participation in the auction ($1.7 billion) was transferred from Sberbank, claims against it could originate from Judge Clark. Sberbank, like other large Russian banks, has funds in correspondent accounts and deposits in foreign banks (more than $100 million is deposited in them). Freezing them could paralyze Sberbank's foreign economic activity; many large Russian companies, including Gazprom, operate through Sberbank.

As this issue was going to press, the session in Houston was still going on. Kommersant will return to this topic tomorrow.


by Petr Sapozhnikov, Dmitry Sidorov, Washington

(Kommersant, 12.23.2004)

Never trust a former Soviet agent, especially if he supplies your gas

Gazprom may lack the sinister aura of James Bond’s foes, but it is as powerful as Dr No

MANY YEARS ago, as a young correspondent in communist Poland, I took a call from the office of the film producer Cubby Broccoli. Somewhere in distant Hollywood an argument was raging about the plausibility of a James Bond script. Broccoli’s bagman, an old schoolfriend, wanted to know how a crackpot communist dictator would go about buying up a capitalist state. “What if the Russians just hold us to ransom instead of nuking us?” asked Hollywood, and did not wait to hear the answer.
Vladimir Putin would have warmed Cubby’s heart and not just because he is an old KGB agent. He is a wolfish cold warrior in a sheepskin coat, determined to adapt the old categories to modern times. The Cold War defined Russia’s legitimate spheres of interest in Europe and Asia, its global reach. And so under President Putin new generations of long-range weapons are tested; he cracks down on critics at home; tries to muzzle the press; centralises power; and sees enemies everywhere. The West, though wrinkling its nose at the latest flash of autocracy or double-dealing at home, does not take this Cold War posturing too seriously. The projection of Soviet power abroad depended on two instruments — the red army and an aggressive Marxist-Leninist ideology — which no longer play a serious role in Russian foreign policy.



Yet Mr Putin has been developing a new policy instrument: the Russian gas and oil-exporting companies that already all but dominate Europe’s energy supplies. Gazprom may lack the sinister aura of some of James Bond’s foes but its power is more than equal to that of Dr No or Goldfinger. Gazprom is assumed to be lurking behind the winner of this week’s £4.8 billion bid for Yuganskneftegaz, the core oil-producing subsidiary of Yukos, the company owned by Mikhail Khodorkovsky, the jailed oligarch and critic of Mr Putin. The President wants Yukos in his hands to prevent the nightmare possibility — a sale to American companies with Mr Khodorkovsky’s profits being ploughed into an anti-Putin party — which would weaken him at home and abroad.

Gazprom has woven a web of energy dependencies from Turkey to Turkmenistan, from Berlin to Baku. The International Energy Agency estimates that gas will account for 62 per cent of European energy consumption in 2020. Two thirds of it will come from Russia. That is why Gazprom is allowed to function as a state within a state, the last great Soviet institution to resist talk of market forces, transparency or even basic verifiable accounting. The gas supplied to Russia’s “near abroad ” — the republics of the former Soviet Union — is subsidised. Many countries in the new EU borderlands — Belarus, Ukraine, Moldova — are heavily in debt to Gazprom. A threat to turn off supplies because of unpaid bills immediately destabilises the countries and makes them vulnerable to Russian demands. Before the recent revolution in Georgia, Moscow decided to stop gas deliveries there for “technical reasons”. Russia wanted to prevent the closure of its military bases in Georgia in order to keep up the pressure on Chechnya.

This is brute power and Mr Putin is the master of it. A sign of the importance of Ukraine to Russia was the appointment as ambassador to Kiev some years ago of Viktor Chernomyrdin, a hard-hitting politician but also a former head of Gazprom. Mr Putin has a KGB man’s cynicism about power. In his world it does not matter much who rules Ukraine. As long as Russia is its primary supplier of energy, any new ruler, the pro-Western Viktor Yushchenko included, has to stay on the friendly side of the Kremlin. After all, Alexander Lukaschenko, the ludicrous, sometimes vicious ruler of Belarus, was once a kind of dissident. The Russians could engineer a coup or street revolution against him at any time simply by raising the price of gas and oil in midwinter. So far Mr Putin has chosen not to. And why should he? Mr Lukaschenko dances to the pipes of Gazprom.

Mr Putin’s champions in the West, above all in Germany, argue that there was never a choice between democracy and dictatorship in Russia. Rather, Mr Putin inherited a state poised between rampant criminalisation and lawless oligarchs on the one hand, and a stable, orderly modernising society on the other. Mr Putin is not a saint, admit the advisers of the Chancellor, Gerhard Schröder, but he made the right choices. If Mr Putin followed Western advice on Chechnya there would be a destructive Islamic state within striking distance of Western Europe. But there is an ancient fallacy at work. It is assumed by Herr Schröder, at least, that the Russian president has a genuinely benign interest in Europe — in part because he speaks German and bought his first washing machine in a Berlin department store. In the days of Peter the Great, the great compact was that Western Europe would help Russia to modernise in return for access to its natural resources. On paper that is the way it looks today. Germany has just agreed to supply highspeed trains to Russia, and Ruhrgas, the German energy concern, has a 6 per cent stake in Gazprom. But Mr Putin is more interested in China — where Gazprom is about to become very active indeed — than in the European Union. By cuddling up to Mr Putin, Herr Schröder thinks that he is securing Germany’s future. In reality he has become his patsy.

Mr Putin’s management of Russia’s oil and gas resources shows how misguided it is to give the Kremlin the benefit of the doubt. Corruption is worse than it was under Boris Yeltsin; much of the destructive enthusiasm deployed against Yukos is motivated by the desire of Kremlin associates to enrich themselves. Gazprom has, at its heart, a network of politicians and former secret service agents. Some simply want to be rich and award each other contracts. Others believe that they are in the vanguard of a new Russia, keen to expand its influence westwards and eastwards. It is the engine room of Mr Putin’s Russia.

(The Times, 12.23.2004)

Putin Defends Takeover of YUKOS Assets

By Richard Ayton and Andrew Hurst
MOSCOW (Reuters) - Russian President Vladimir Putin on Thursday strongly defended the takeover by state oil firm Rosneft of stricken oil major YUKOS' key production unit, Yuganskneftegaz, calling it a legitimate business deal.

"Rosneft, which is de facto 100 percent state owned, bought Yuganskneftegaz. I think everything was done by market methods," Putin told a news conference.

In his most strident defense yet of the Kremlin's seizure of YUKOS' prize asset, which pumps one-10th of Russia's oil, Putin said: "Today the state is using absolutely legal and market mechanisms to serve its interests."

Rosneft on Thursday said it had bought 100 percent of unknown Baikal Finance Group, the surprise winner of Sunday's auction of Yugansk at a price of $9.4 billion. The purchase effectively nationalized Yugansk.

The Yugansk auction was the culmination of a Kremlin campaign to crush YUKOS' politically ambitious principal owner, Mikhail Khodorkovsky, and seize control of strategic sectors of the economy sold off in the chaotic privatisations of the 1990s.

Khodorkovsky himself is on trial for fraud and tax evasion.

Putin, while not referring to Khodorkovsky by name, said many businessmen had broken the law in order to buy state assets on the cheap after the Soviet Union's collapse.

"You all know very well how our privatization was carried out at the beginning of the 1990s. And how people were using different tricks, which included breaking laws then in force, in order to acquire ... state property," he said.

YUKOS CRUSHED

YUKOS has been left broken-backed, crushed under the burden of $27 billion in tax claims. The purchase of Yugansk will make Rosneft one of Russia's biggest oil firms with production of 1.45 million barrels per day, almost as much as OPEC member Libya.

Rosneft's chairman, Igor Sechin, has been a close associate of Putin since his days in St Petersburg's local administration. He doubles as deputy head of the Kremlin staff and is seen as one of the most powerful figures in Russia.

The move also confirms the ascendancy of hard-liners in the Kremlin, known as "siloviki," sworn to bringing to heel business "oligarchs" who own vast swathes of Russian industry.
One Western manager based in Russia and experienced in dealing with Kremlin insiders said the siloviki appeared to be heavy-handed and grasping, but he did not believe they were out to seize control of other private businesses.

"They are grabbing their piece of the pie but I do not see a mass asset grab," said the manager, who works for a prominent Russian business concern and asked not to be identified. Russia may be evolving toward an Asian pattern of economic development, where the state intervenes heavily in strategic industries but foreign investors are welcome if they seek government approval for their ventures, said one investor.

"If you are a big foreign investor you make your deal at the top," said Tim Ash, an emerging market strategist with Bear Stearns in London.

"There are a lot of similarities with China, but they (the Kremlin) need to reassure foreign investors that they have a role and to spell out what the economic model is."

LEGAL BATTLE

Rosneft is due to be merged with state gas monopoly Gazprom , which was itself the favorite to buy Yugansk but was barred by a U.S. court after YUKOS filed for bankruptcy protection in Houston, in a last-ditch move to save itself. The next hearing in the bankruptcy court was scheduled for Jan. 6.

Putin on Thursday said the U.S. court injunction was unacceptable from an international legal point of view.

Gazprom on Thursday said its planned merger, which is designed to open up trading in Gazprom's shares to foreigners, would not be affected by Rosneft's acquisition of the Yugansk assets.

YUKOS lawyers have argued that Gazprom illegally took part in the auction of Yugansk, even though it did not lodge a bid, and that it was in contempt of the Houston court's restraining order.

The Gazprom-Rosneft merger will bring Yugansk under Gazprom's control, as originally intended, but YUKOS said it would not be the end of its campaign to pursue Yugansk's owners through international courts. "YUKOS confirms that it will use all legal means to dispute this illegal deal in the interests of the tens of thousands of shareholders in the oil company," YUKOS spokesman Alexander Shadrin told Reuters.

Max Gutbrod, a partner at Baker and Mackenzie's Moscow office, said the Rosneft purchase may make it harder for lawyers acting for YUKOS and Menatep, the company controlling the stricken oil firm, to pursue litigation successfully.

"You cannot transgress the state's freedom to tax and enforce taxation on sovereign territory and that is what this case is all about," he said.

(Reuters, 23.12.2004)

Russia's auction eerily familiar

By The Moscow Times

The Russian government's fascination with appearances has a long history. Be it Potemkin villages, political show trials, or rigged privatizations, government fixers have always had a flair for deception.

President Vladimir Putin and his supporting cast are no exception, as illustrated by Sunday's auction of Yuganskneftegaz, a key unit of the troubled Yukos oil firm. The backdrop for the sale of the century was appropriately dramatic, with a $1.7 billion cover charge and supertight security. The set looked strikingly real. The auctioneer wore a tuxedo, and tables were set for three delegations, complete with bidding lollipops.

The required minimum of two delegations showed: Gazprom, the state-controlled natural gas company that Mr. Putin is trying to fashion into a multifaceted rival to Western supermajors, and Baikal Finance Group, a mere foil to add credibility to the play. As in the last two major auctions under Putin, the question was not who'd win, but how little the Kremlin agreed to let the "winner" pay. The starting price for Yugansk, the heart of jailed businessman Mikhail Khodorkovsky's Yukos oil empire, was cheap. Such a bargain that the Kremlin had to persuade unwanted suitors from India and China to stay away. Gazprom, however, has a cash-flow problem, and had to rustle up a $13 billion loan from a consortium of Western banks. In an 11th-hour move, Yukos filed for bankruptcy in Houston last week, winning an injunction against Gazprom and its bankers from participating in the auction.

What was clear to the US judge - and to every impartial observer - was that the Russian government is acting beyond the bounds of its own laws. The only legal concerns the authorities appeared to have were the lawsuits Gazprom could face abroad if it violated the US injunction and bought Yugansk on the cheap. So once again the Kremlin demonstrated its contempt for due process by simply bending the rules.

Enter Baikal Finance Group. Registered in the sleepy town of Tver, it had no record of having done any kind of business. According to the hastily rewritten script, Baikal won the largest, most-watched auction in the country's history - and the officials running the auction claimed to know nothing about the winner. Gazprom didn't even place a bid, while Baikal bid twice, paying $500 million more than it had to.

Putin's "dictatorship of the law" grows more hollow each day. As the Yugansk auction so farcically demonstrated, laws are nothing more than tools that the Kremlin uses to neutralize unwanted actors on its stage. The irony of this story is that a rigged auction is exactly what landed Mr. Khodorkovsky in jail in the first place and triggered the wider assault on Yukos. With this most recent ersatz auction, we're right back where we started.

• This editorial is reprinted with permission from the Tuesday issue of The Moscow Times, an English-language daily in Russia.

(Christian Science Monitor, 12.23.2004)

Menatep Accuses West of “Cold Reaction” to Yukos “Robbery”

The Menatep group, which holds the majority of the stock in embattled Yukos, said that the Sunday auctioning of Yuganskneftegaz, the company’s chief production asset, is an outright violation of Russian and international law.

“We believe that Baikal Finance Group [the mystery company that bought the subsidiary in the forced auction] was nothing but a cover for the Russian government,” a Menatep press release said. It added that the announcement that Rosneft — a major state company — bought BFG only confirmed its suspicions.

The group added that while the government’s actions were not surprising “given the political course,” it was disappointed by what it called a “cold reaction” from governments in the West.

It also alleged that the Yukos assets had been “stolen” by the Russian government.

(MosNews, 12.23.2004)

Khodorkovsky : "Government Makes Itself a Christmas Present"

December 20, Russia’s most effective oil company has been destroyed following the selling of Yuganskneftegaz, Mikhail Khodorkovsky’s press center reported citing the former YUKOS CEO and its major shareholder.


According to Khodorkovsky, Yuganskneftegaz was sold in the best traditions of the 1990s. The government made itself a wonderful Christmas present – it destroyed the most effective oil company of Russia,” Khodorkovsky said through his lawyers.

Former YUKOS CEO also expressed his conviction that the society will not be indifferent to the fate of the company’s workers. “I am sure that, sitting at the Christmas or New Year’s table with your families, all of you – oil workers, journalists, analysts, or any caring people, at least for one moment, will not be thinking about faceless shares, but will remember a woman lawyer alienated from her family and small children, imprisoned simply to be put out of the way and for others to get a lesson," Khodorkovsky said. (Deputy Head of YUKOS-Moscow legal department Svetlana Bakhmina was arrested last week by sanctions of Basmanny Court of Moscow).

Khodorkovsky also remembered about his former colleagues, “sitting in cells or being forced to leaved their land and families,” “the people, left with no paychecks before the New Year.” According to YUKOS ex-head, “right now this is much more important, significant and sad than the “auction show.”

(Kommersant, 12.20.2004)

Mikhail Khodorkovsky, Meshansky Court, 12.20.2004

Yukos founder accuses Russia of destroying top oil firm

MOSCOW (AFP) - Yukos' jailed founder accused the government of "destroying" the nation's top oil group as mystery surrounded the new owner of its crown jewel, widely seen as a cover for state-run gas giant Gazprom.

In an auction cloaked in secrecy on Sunday, the Russian authorities broke up Yukos, the country's largest oil producer, selling its main subsidiary Yuganskneftegaz to an unknown entity, Baikalfinansgroup, for 9.35 billion dollars (7.02 billion euros).

Mikhail Khodorkovsky, Yukos' main shareholder and a powerful Kremlin opponent who has been behind bars since October 2003, lashed out over the sale as lawyers for the ousted proprietors threatened legal action that could last for years.

"The state has offered itself a wonderful Christmas present, destroying the most efficient oil company in Russia," the billionaire tycoon said in a statement released by his lawyers as he appeared in court for a trial hearing.

Although Gazprom denied it was connected to the successful bid, observers were of the view that it had employed a scheme to sidestep the threat of US lawsuits from Yukos.

"Gazprom used a front to buy Yuganskneftegaz," leading Russian daily Izvestia splashed across its front page.

"By hiding behind a completely unknown company, Gazprom is seeking to protect itself from US justice," the newspaper said.

Gazprom, a vast opaque company that is the world's largest gas producer, had been seen as the favourite to win the auction, fulfilling a Kremlin ambition to restore state control over vital oil resources.

But a US court order obtained by Yukos in Houston, Texas, last week barring Gazprom from participating in the sale had raised the threat of damaging US legal action and the gas monopoly at the last minute withdrew from the bidding.

Baikal, a firm with no telephone and an address in Tver, a city north-west of Moscow, was only registered as a company on December 15, the Vremya Novostei daily reported.

Yukos has vowed to sue any new owner of Yugansk and lawyers for its main shareholders said Monday that they would take legal action in the United States and Europe once the identity of the ultimate buyer was clear.

"We will be litigating against the new owner and other parties. The concept of using a shell in order to shield Gazprom is definitely a possibility." Sanford Saunders, a US lawyer acting for the Yukos shareholders, told AFP by telephone from London.

"There will be multiple claims, in the US, Britain and elsewhere in Western Europe," he said. Yukos lawyers have warned they would seek to impound Gazprom's gas exports.

Baikal, which won the auction in the best traditions of the murky Russian 1990s privatizations, may in fact represent Kremlin-friendly private oil firm Surgutneftegaz, which could resell the asset to Gazprom later, reports said.

A government official close to Gazprom management said that the aim of the transaction was to avoid US legal action.

"The most simple method today (for Gazprom) is to buy Yugansk from a totally unknown winner of the auction and become a legally-irreproachable owner," he told Vedomosti.

The forced sale represents a death blow for Yukos, which Khodorkovsky had built it into Russia's most Western-like company before he was arrested at gunpoint on his corporate jet on a Siberian airfield to face trial on fraud and tax evasion charges.

Yugansk pumps a million barrels a day, which represented about 60 percent of oil produced by Yukos, and accounted for more than 70 percent of its reserves.

The sale of 76.8 percent of Yugansk was officially to pay off massive tax bills of 27.5 billion dollars levied on Yukos, denounced by the company as a state-directed expropriation.

Russian officials said Sunday they would proceed with other Yukos asset sales to settle the remaining tax debts, estimated at about 9.3 billion dollars since some of the bill has already been paid off from oil revenues.

But lawmakers from the nationalist Rodina party, usually supportive of the Kremlin, said they were dissatisfied with the auction and said they would ask prosecutors to investigate.

"We suspect that the auction was not organised in a transparent manner," the party's leader Dmitry Rogozin said.

(AFP via Turkish Press, 12.20.2004)

Lifeline lost, Yukos gasps for air

Moscow, Dec. 20 (Reuters): Russia’s top oil exporter, Yukos, slid closer to collapse after it lost its main production unit to a mystery buyer in a forced auction and acknowledged today that its crude shipments were slowing.

Yukos chief executive Stephen Theede said the firm would take no steps to turn over control of its Yuganskneftegaz operation until the full identity of the buyer, Baikal Finance Group, was revealed. “Unfortunately as a result of the auction that took place yesterday, an irreversible act has taken place here,” Theede said in London.

But he said a carve-out of the 1.7 million-barrel-a-day unit would take weeks if not months and that in the meantime it was “business as usual” at Yugansk.

Yesterday’s sale by government auction of Yugansk is the culmination of a Kremlin campaign to crush Yukos’ politically ambitious principal owner, Mikhail Khodorkovsky, and seize control of strategic sectors of the economy sold off in the chaotic privatisations of the 1990s.

The Kremlin’s ruthless determination to impose its will stunned investors, some of whom said Russia had become too hazardous a place for westerners to do business.

“Russia is sliding towards being uninvestable. The whole thing is very sad,” said Martin Taylor, hedge fund manager at London-based Thames River capital running $5.5 billion assets. “In the 1990s, Russian stocks traded at low valuations because everyone was worried about being robbed by the oligarchs. Now everyone is worried about being robbed by the government,” Taylor said.

Oil traders said Yukos defaulted on two December Urals cargoes scheduled to load from the Baltic port of Primorsk after failing to pay export duties and fees.

Theede, speaking from self-imposed exile, said the company could not keep producing oil without cash which tax authorities have been seizing as part of a Kremlin-inspired campaign to shatter the company. “You cannot run a company the size of Yukos on no money so we are already starting to see an impact, we are already starting to see a decline,” he said in London.

Yukos stock lost more than a quarter of its value to 55 cents on RTS exchange in reaction to yesterday’s auction, a mystery firm registered in the provincial Russian town of Tver.

At Yugansk’s Siberian home down in the remote oil town of Nefteyugansk, the lights were still on at the company offices but an employee there contacted by telephone said salaries had not been paid for one month.

“Year-end holidays are close, and people don’t have money. Of course people are worried,” she said, asking not to be named. Yukos is an empire with over 130,000 workers in 60 Russian cities whose livelihoods are now at risk.

Yesterday’s sale was ordered to raise funds to help pay Yukos’ $27.5 billion back-tax bill, the result of a relentless assault by authorities which analysts say is aimed at breaking it up. Of the total tax bill, Yugansk itself owed $5 billion. The sale leaves Yukos stripped of its main asset, which pumps about one million barrels of oil a day, more than Opec member Qatar.

(The Telegraph, 12.20.2004)

Putin Says He's Ready to Talk

In Germany for a two-day visit, Vladimir Putin said he's ready to work with the EU about the Chechnya conflict and is prepared to answer questions about delicate subjects like Ukraine and press freedom.

Chancellor Gerhard Schröder met Russian President in Hamburg on Monday, the first day of a two-day visit that was initially planned to take place in September but was postponed due to the Beslan hostage crisis.

On Monday evening, after talks with Schröder, Putin told reporters Russia is prepared to work with Germany and the European Union toward finding a solution for the conflict in Chechnya.

He said his government had received "suggestions for a greater participation of Germany and the EU" for "settlement of the Chechnya problem." He said the suggestions had been scrutinized closely in Moscow.

"We sould like to adopt these suggestions wholeheartedly," he said, although he did not go into the particulars. German authorities also would not reveal the exact nature of the suggestions presented to Russia.

Questions about Ukraine

Putin also said he was ready to discuss "all the questions at issue" regarding the cancelled presidential elections in Ukraine as well as press freedom and "internal reforms in Russia."

Although economic cooperation, EU ties and educational exchanges between the two countries figure high on the agenda, it’s the uncomfortable issues of the Ukrainian presidential election in a week’s time and the dismantling of Yukos that overshadow the bilateral talks.

The re-run of the controversial Ukraine election, which pitted the pro-western opposition candidate Viktor Yushchenko against the Kremlin-backed Prime Minister Viktor Yanukovych, sent a decisive rift through ties between the European Union and Russia. Schröder, who enjoys a warm personal friendship with Putin in addition to maintaining one of the closest working relationships to Russia, has been put in a difficult position over the situation in Ukraine.

Schröder's Ukrainian conflict

The chancellor likes to see himself as a bridge between the European Union and Russia, but he has found that role hard to reconcile with Putin’s support for Yanukovych. Unlike other EU leaders, Schröder refrained from loudly criticizing Putin for endorsing the fraudulent vote which put Yanukovych into the presidential seat.

Instead, Schröder telephoned Putin twice in the highly charged days following the Nov. 21 ballot while Russia raged over the West’s meddling in Ukraine’s internal affairs.

“There is no doubt that Schröder can raise issues with Putin that other EU leaders can’t and his two calls to Putin showed the respect between the two,” Alexander Rahr, a Russian specialist at the German Council on Foreign Relations, told AFP.

Minimizing the differences

“But at these talks Schröder will not want to make the differences between the two noticeable, for many reasons, such as the energy alliance that Europe wants to build with Russia,” he added.

Schröder will try to minimize the discussions about Ukraine and the only public declaration will be one that both sides can support: endorsement for free and fair elections during the re-run on Dec. 26.

Energy policy

Another issue unlikely to be aired publicly is the German government’s stance on Russia’s auctioning off of the crown jewel of stricken oil giant Yukos on Sunday. During high-profile bidding, a mystery company that is widely believed to be a front for the state-run gas monopoly Gazprom, snatched up Yuganskneftegaz for $9.35 billion (€7.02 billion).

The purchase by the high bidder, a previously unknown Baikalfinansgroup, represents a death blow for Yukos, whose ambitious billionaire founder Mikhail Khodorkovsky was arrested in October 2003 on fraud and tax evasion charges. If the Baikal group turns out to be a front for Gazprom, it would put a large slice of the Russian energy industry back into government hands.

Just ahead of the auction, Gazprom negotiated with a consortium of European banks headed by Deutsche Bank to secure a €10-billion loan to buy Yuganskneftegaz, an attempt many experts saw as an effort to renationalize the Russian oil industry.

“In reality, this is an example of creeping nationalization of a private industry,” said Frank Umbach, an expert for energy security at the Körber-Center Russia.

Keeping the gas lines open

The German government, although aware of the complaints, did not raise any objections to the attempts because, as a spokesman said, “it involves private economic activity.” But by refusing to criticize Gazprom’s bid, “the chancellor endorses the politics of Putin,” Umbach told Deutsche Welle.

Is Schröder afraid of alienating Moscow and risking a change in the Russian-German energy policy? Nearly 40 percent of the country’s natural gas imports come from Russia – Germany is dependent on Russia for its energy consumption.

The head of the research group for Russian studies at the Institute for Political Science, Roland Götz, told Deutsche Welle there is no reason for Schröder to feel he needs to placate Putin.

“It’s a myth to think that German politics have to bend to Russia," he said. "The economy between the two countries would continue to flourish even if the political relations are not so hearty."

However, it’s just as unlikely that Schröder will raise the issue of energy policy as that of Ukraine, said Umbach and doubted that the chancellor will try to influence Putin in any way.

“Schröder is following an energy policy that has little to do with the economic and political interests of Germany and the EU," he said. "It only serves to intensify the personal ties between the two leaders.”

Deutsche Welle, 12.20.2004)