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The Jamestown Foundation Eurasia Daily Monitor
Volume 1, Issue 69
www.jamestown.org
9 August 2004
Is Dubai's ruling family behind Yukos bailout offer?
PERSIAN GULF INVESTORS MAKE A BID FOR YUKOS
By Charles Gurin

The "mystery backer" behind an offer to pay off Yukos' tax arrears is a consortium of Dubai-based investors, the Sunday Times reported on August 8. "Members of Dubai's ruling Maktoum family are believed to have joined a bid fronted by Konstantin Kagalovsky, a former associate of Mikhail Khodorkovsky, Yukos's largest shareholder," the British newspaper reported. Last month, George Miller, a British businessman with long-time ties to Kagalovsky, confirmed that the consortium had sent President Vladimir Putin a proposal to pay off Yukos' multi-billion-dollar tax bill and buy out a majority stake in the embattled oil company. A consortium spokesman, Charles Stewart-Smith, said that $10-$12 billion was "in the ballpark" of what would be needed for the deal and confirmed that the consortium was led by Kagalovsky, but he refused to identify other members. Kagalovsky, for his part, said the consortium was ready "to fully cover" Yukos' debts (see EDM for July 26).

Asked to comment on the Sunday Times report about the involvement of Dubai's ruling Al Maktoum family in the consortium, Kagalovsky told Kommersant: "I cannot name the members of the consortium but can confirm that investors from Persian Gulf countries plan to offer more than half of the needed funds. The exact volume of the required funds is also unknown, given that the sum total of the tax demands that will be made on Yukos has not been determined." The tax authorities have already presented Yukos with a bill of $3.4 billion for unpaid taxes and penalties for 2000 and are in the process of presenting the company with a bill of similar size for 2001. Some anonymous government officials have predicted that Yukos' total tax bill will reach $10 billion. Kommersant noted that the Al Maktoum family owns Emirates Airlines, which in recent years has sponsored Britain's Chelsea soccer team. According to the Russian paper, the airline company has continued sponsoring Chelsea since the team was bought in June 2003 by Roman Abramovich, the Chukotka regional governor and owner of the Sibneft oil company (Kommersant, August 9).

Still, some observers remain skeptical that the Russian government will permit foreigners to buy a controlling share in Yukos. Sergei Markov, director of the Institute for Political Studies, said the initiators of the campaign against Yukos have a very specific goal: Yukos' owners, who via the company's privatization "received tens of billion of dollars for free" and "and used this financial base for seizing political power in the country must give back the lion's share of this property." But rather than admitting that Yukos was given away for free and seeking to find a compromise with the government, Yukos' management and lawyers are continuing "this senseless battle," which is destroying the company, Markov said. He added that while "it is not possible to say that the government is behaving ideally, it is possible to understand its actions, but the political mistakes that Yukos' leadership is making are impossible to understand" (Ekho Moskvy, August 8).

Former Economics Minister Yevgeny Yasin, who is currently research director of the Higher School of Economics, said the campaign against Yukos is motivated largely by "Khodorkovsky's independence and his plans to attract large trans-national oil companies as shareholders." "The state wants to establish its control over the company, wants the oil industry to be in the hands of obedient people who will spend money on what they are told to spend it on," Yasin said. "But I suspect that neither investors from Dubai, much less American companies, would be any more accommodating than Khodorkovsky" (Ekho Moskvy, August 8).

Despite the ongoing discussions about who will end up in control of Yukos, the company won a round on August 6, when the Moscow Arbitration Court ruled that last month's arrest of Yukos' main production unit, Yuganskneftegaz, by court bailiffs was illegal. Some analysts, however, cautioned against reading too much into the decision, saying that the government would find other means to pry away Yukos' main assets. "It's clear that we are talking about legal process, and I assume the state will be able to use it to get whatever asset they want," said Christopher Weafer, chief strategist with Alfa-Bank (Moscow Times, August 9).

Britain's Sunday Telegraph, meanwhile, reported that Platon Lebedev, the core Yukos shareholder who is being tried for large-scale fraud and tax evasion together with former Yukos CEO Mikhail Khodorkovsky, is being deprived of urgent medical attention for a potentially fatal liver problem. "His life expectancy might be in the range of a few months," said John O'Grady, a consulting hepatologist from the Institute of Liver Studies at King's College Hospital who reviewed Lebedev's medical records at the request of his defense lawyers (Sunday Telegraph, August 8).