Russia’s Putin defends moves against Yukos

/ Source: The Associated Press

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 the map.

Dismissing critics’ complaints as baseless, Putin said Thursday 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 rotten 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 that it had bought the previously unknown company that had won Sunday’s disputed auction of Yukos’ Yuganskneftegaz unit. Yuganskneftegaz, which produces over 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.

Frantic fight
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.

Putin said he was “amazed” by the injunction issued by U.S. Bankruptcy Judge Letitia Clark and turned to Latin to assail her decision: par in parem non habet imperium, or an equal has no authority over an equal.

“It is inadmissible under international law not to observe so-called international politeness ... if our colleagues only like the last word in this phrase ’imperium’ and they apply it only to themselves ... then we must say that this kind of international relations-building doesn’t suit us,” Putin said.

“I’m not even sure that (the judge) knows where Russia is located,” he said.

Analysts say the U.S. court decision stopped 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 the state gas giant 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.

Back to the state
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 imminently into Gazprom, the world’s biggest gas producer.

For its contribution of Rosneft to Gazprom, the Russian state will receive a controlling stake in the gas giant — a prerequisite to allowing foreign investors access to Gazprom’s coveted, and undervalued, shares.

With Yuganskneftegaz, Rosneft will have a combined oil output of at least 1.4 million barrels per day, ranking it second only to Lukoil in Russia and just behind France’s Total SA, which pumps 1.66 million barrels per day. The world’s biggest oil producer, Exxon Mobil Corp., 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 and has taken the shine off Russia’s booming economy.

Richard Boucher, a U.S. State Department spokesman, said this week that Yuganskneftegaz’s sale “added to the erosion” of investors’ confidence in Russia’s judicial and legal system.

Russia’s finance and economics ministers warned Wednesday that after consecutive years of double-digit growth, Russia’s stock market was set to show zero expansion over 2004. Gross domestic product is expected to grow by 5.8 percent next year, down from 6.8 percent.

Also Thursday, in a veiled reference to Khodorkovsky, Putin contrasted Sunday’s auction with the way well-connected business tycoons obtained state-owned properties at bargain prices shortly after the breakup of the Soviet Union in 1991.

“Some market participants got multibillion state assets using different tricks, including some violations of then-existing legislation,” Putin said.

By contrast, he said, the purchase of Yukos’ subsidiary by a 100-percent, state-owned company “was done in absolute conformity with market means.”