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)