#1 - RW 265
Russia: Critics Call Kremlin's Yukos Investigation Politically Motivated
By Valentinas Mite

Yukos, Russia's second-biggest oil company, says the Kremlin's investigation into its financial affairs is politically motivated and has nothing to do with the tax violations the government has alleged. Many analysts agree. They say the Kremlin is sending a unequivocal message to all of Russia's top enterprises to steer clear of politics in the run-up to December's parliamentary elections.

Prague, 17 July 2003 (RFE/RL) -- Mikhail Khodorkovskii, the head of Russian oil giant Yukos, yesterday accused state authorities of launching an investigation into the company as a means of advancing their political agenda.

The standoff between Yukos, the country's number-two oil company, and Russian authorities began early this month, when prosecutors arrested Platon Lebedev, the head of Menatep Group, the majority Yukos shareholder. Lebedev was arrested for fraud in connection with a 1994 privatization scheme. Khodorkovskii was also called in for questioning.

The Russian Prosecutor-General's Office yesterday ordered the Tax Ministry to launch an investigation into Yukos's financial affairs. Khodorkovskii -- who, according to "Forbes" magazine, is Russia's richest man with an estimated $8 billion fortune -- hit back the same day.

Speaking on arrival from the United States, the 40-year-old oligarch said the investigation has nothing to do with financial impropriety -- and everything to do with politics. "Regrettably, I think the reasons [for the investigation] are purely political," he said. "As to what forces are behind it -- well, I think you can guess that without me telling you."

It is unclear why the authorities decided to wage war on Russia's most powerful businessman. But observers say there are several possible explanations.

Some echo Khodorkovskii's own claim that the Kremlin is punishing Yukos for pursuing its political activities -- and warning other businesses to avoid doing the same. Andrei Ryabov, an analyst at the Carnegie Center in Moscow, told RFE/RL the Kremlin is looking to eliminate Yukos, which provides key financial support to opposition parties seeking to counterbalance pro-Kremlin centrists in parliamentary elections this December.

The election, which comes just ahead of presidential elections next spring, are seen as crucial to Vladimir Putin's re-election bid. Ryabov said authorities were not pleased by Yukos's political engagement.

"[Yukos supports Yabloko] and also the Communists. And it's a factor that irritates, if not President Putin, then at least a part of his administration, which put effort into boosting, strengthening and pushing forward centrists -- the main pro-president party, Unified Russia. Yukos, in fact, used an alternative method -- supporting both the right and the left as a way to make the pro-president centrists weaker," Ryabov said.

Ryabov said many of Russia's richest companies buy politicians and political parties, but Yukos is unique in seeking a true political alternative. "The company [Yukos] supports all political parties across the political spectrum, and that means it supports their equal competition," Ryabov said. "It objectively supports the principle of competition in the political system."

Ryabov said pro-presidential parties like Unified Russia exploit state resources for their election campaigns and have unrestricted access to state-owned radio and television. Yukos, he said, "does not support the ideology of the Communists or Yabloko, but supports a system in which all parties have equal opportunities, and in which the parties in power are not allowed to use state resources to enforce their will on the others."

Nicolas Redman is a Russia analyst with the Economist Intelligence Unit. He told RFE/RL party politics explain much of the Yukos conflict, and that the Kremlin is clearly dissatisfied with Yukos meddling in politics. Redman also said the Kremlin may be looking to punish Russia's oligarchs as a way of winning popular approval ahead of the parliamentary and presidential elections.

"I think politics, or rather party politics, is only part of the game," he said. "An attack on the oligarchs, as a populist measure, has some attractions for the Kremlin, and it's also about the best chance to remind Khodorkovskii just before he becomes [the head] of Russia's largest company, who the boss still is in Russia."

Khodorkovskii said today that plans are proceeding for a merger between Yukos and the Sibneft oil company -- a deal that would result in Russia's largest enterprise and the world's fifth-biggest oil major. Some observers say the move is aimed at building a financial powerhouse capable of standing up to state-controlled Gazprom, Rosneft, and the Kremlin.

Redman said that for some politicians in Putin's administration, it may seem politically effective to attack Russia's oligarchs just before the elections.

Mark Urnov, the head of the Moscow-based Expertise research center, an arm of the Center of Political Technologies think tank, told RFE/RL that populism may play a large role in the conflict. He said many in Russia are unhappy with Russia's elite generation of oligarchs, like Khodorkovskii. A survey conducted last year by the independent Public Opinion Fund has found that half of Russians regard oligarchs with "hatred" or "irritation."

All the same, Urnov warned, "the populist campaign against Yukos can yield results during the election campaign but be disastrous for the Russian economy in the long run." He said there is a danger that the Kremlin may attempt to reverse Russia's murky privatization of the 1990s.

Many analysts agree that nearly any Russian company doing business during the heady days of privatization could be investigated for financial wrongdoing. But Russian Prime Minister Mikhail Kasyanov today offered assurances the

country's privatization is "irreversible."

These assurances mean little for the analysts who see the whole crisis as a reflection of fighting between two rival groups inside Putin's administration. This theory suggests that one group, mainly former KGB officers from Putin's native city of St. Petersburg, feel they did not benefit from privatization and seek a redistribution of the property. Another group in the administration consists of people who came to politics during Boris Yeltsin's time. They are already rich and oppose any redistribution. Kasyanov, a holdover of the Yeltsin era, belongs to the latter group.

Urnov and Ryabov agree that Yukos may be a victim of infighting in the Kremlin. Urnov said: "The conflict between the oligarchs and the state, as I have recently said several times, is a conflict of principally different models of development proposed for the country. One of these models is supported by a part of the people surrounding the president and big business. The other model is supported by another part of the people surrounding the president and mainly by not very effective and loss-making, state-owned companies."

Though the reason of the attack on Yukos is not clear, the war between the company and the state already has destructive consequences for the Russian economy. The shares of the main Russian companies are slumping. Yesterday, Sibneft shares dropped by nearly 10 percent. Unified Energy Systems was down nearly 8 percent and Gazprom fell more than 5 percent. Analysts say the market meltdown is the result of concern over how and when the conflict may end.

Meanwhile, speaking yesterday, Khodorkovskii said that investigations into the financial affairs of Yukos would result in substantial capital flight. Without being more specific, he said that Yukos tried to convince its partners "that this situation is temporary, but many business decisions and investment decisions will be postponed" nonetheless.

CDI Russia Weekly #265 ~ Contents  •  Next