#7 - RW 267
Byzantine Russian power struggle lies behind business-bashing
July 31, 2003
AFP

A Byzantine power struggle appears to lie behind the business-bashing campaign against Russia's flagship oil company, Yukos, in which the tsar, President Vladimir Putin, has remained publicly aloof.

At stake is not only who will succeed Putin once his second term is up in 2008 -- the president is expected to easily win re-election next March -- but the longer-term success of Russia's efforts to integrate with the West.

Commentators have scratched their heads to explain the exact circumstances behind the series of fraud, tax evasion and murder probes against Yukos, the biggest private company and the best-managed in Russia, whose top shareholder Platon Lebedev has been in jail since July 2.

But all agree that a clique of former KGB colleagues of Putin who now hold top jobs in the Kremlin have launched a bid to drastically curb the power of tycoons such as Yukos chief Mikhail Khodorkovsky and their allies in the government.

And the KGB clan is suspected by some observers of wanting to undo the privatisations of the 1990s in which today's billionaire magnates snapped up oil and metals resources at bargain-basement prices and grabbed key business assets.

"This battle is about who will be in the president's team in the second term and what will be the policy in the second term. This is closely linked to who will succeed him," Sergei Markov, a top Kremlin-connected analyst told AFP.

Khodorkovsky has been financing opposition parties ahead of the December parliamentary elections in the hope of influencing the make-up of the next government and choice of prime minister, he noted.

"His ambition was to form a powerful political faction in parliament. Then he could even stand as a candidate in the 2008 presidential elections," added Markov, director of the Institute of Political Studies.

Putin, who came to power in 2000 vowing that the tycoons, the so-called "oligarchs," would no longer wield power as they did under his predecessor Boris Yeltsin, has made only oblique references to the conflict.

This is despite the fact that it has wiped billions off the Russian stock market as foreign investors alarmed at the threat to property rights pull their money out, threatening the economic achievements of the last three years.

But in the first clear signal, a senior Russian official said this week that Putin had not initiated the attack on Yukos, was anxious that it was damaging the economy, and did not support a review of the privatisations.

"We have to get out of this situation as quickly as possible, but the damage to the economy is already done," the official told reporters on condition of anonymity, although adding that Putin could not intervene directly in a judicial matter.

Yet Yukos chief Khodorkovsky, the world's 26th richest man according to Forbes magazine, had visibly become an irritant for the president as well as his entourage as he uses his immense wealth to fund his political activities.

His company is on the verge of merging with Sibneft to create the world's fourth-largest oil producer and there have been rumours of a tie-up with a Western major, which would make him untouchable.

"Khodorkovsky became hugely influential, he did not realise that this turned him into a threat," Markov said.

The conflict has provoked a huge split within the government as liberal politicians from the Yeltsin era known as the "Family," including Prime Minister Mikhail Kasyanov, have tried to defend Yukos.

Yulia Latynina, a prominent business journalist, believes Putin would like to call a halt to the entire affair but cannot be seen to intervene in Khodorkovsky's favour.

"The president cannot reject his friends, he would be seen as supporting the oligarchs. But he is stuck between two evils: it's either a political crash or an economic crash," she told AFP.

Anders Aslund, a former adviser to the Russian government in the early 1990s, said he feared "devastating" international repercussions.

"What foreigner will dare to invest in Russia, if even Russia's richest man and best operator is not safe," Aslund asked in an opinion piece.

"Putin's claims to promote the rule of law and good relations with the West come across as a joke while he is making use of law enforcement for political persecution," the respected economist wrote.

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