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Washington Post, November 6, 2003

Putin Rejects Revoking Yukos Licenses

By Peter Baker

MOSCOW, Nov. 5 -- President Vladimir Putin came to the defense of Russia's beleaguered YukosSibneft oil company for the first time Wednesday, overruling a cabinet minister who threatened to strip the country's largest oil producer of its licenses to exploit Siberian fields.

The threat by Putin's natural resources minister drove the country's financial markets further down and fueled uncertainty about how far the government would go in its campaign against YukosSibneft and its owners. Prosecutors have already indicted the firm's chief shareholder, Mikhail Khodorkovsky, and two partners, and have impounded more than 40 percent of company stock.

Taking licenses from YukosSibneft could severely harm the firm by reducing its production. Apparently concerned about the economic impact, Putin intervened with strong words, saying he had learned about of the minister's remarks just 10 minutes earlier.

"I expect the government will refrain from steps of this kind," he told reporters in Rome, where he was trying to reassure European leaders and foreign investors of Russia's commitment to capitalism following the controversy surrounding Khodorkovsky's imprisonment.

"I have strong doubts that such actions would be appropriate," Putin added about the licensing threat. "It seems like one government agency freezes shares and another takes away licenses. The state cannot seek to stop a company's activity. . . . The state should not really seek to destroy the activity of the Yukos company. The results would be negative."

It was Putin's first public move to rein in government authorities out of apparent concern that their four-month-old pursuit of Khodorkovsky and his team might in turn damage the company, which is one of Russia's greatest corporate assets.

Putin told bankers in a private Kremlin meeting last week that he thought officials had been a little too "zealous" going after Yukos, but until Wednesday he had largely endorsed their actions in public.

The conflicting messages from two of the country's senior officials on the same day underscored the deep divisions within the government and muddied the situation for many investors. The already-sagging benchmark RTS stock index fell another 2 percent on the news and Yukos dropped 5 percent.

International credit agencies signaled their escalating concerns as well. Moody's listed a negative outlook for Yukos and its merger partner, Sibneft, which still trade separately. Standard & Poor's warned it might downgrade Russia's national investment rating as a result of the political and economic crisis.

"The market needs some time for nothing to happen so people can tiptoe back in," said Stephen O'Sullivan, head of research at United Financial Group, a Moscow investment bank. But "every day it's something else." Threatening licenses represents more of a risk to YukosSibneft than impounding stock or arresting owners, he said. "It goes to the heart of the company's operations."

Christopher Weafer, chief strategist at Alfa Bank, a major Russian financial institution, said in a research note to clients that the threat "certainly throws an unwelcome spanner in the works," adding that "such statements easily unnerve investors in these uncertain times."

Some analysts speculated that the move to revoke licenses might have been inspired by a competitor, particularly the state-owned Rosneft oil company, with which Khodorkovsky has feuded lately. The Natural Resources Ministry has already begun investigating Yukos licenses and recently turned over control of one oil field to a competitor.

In an interview with Rossiskaya Gazeta newspaper, Vitaly Artyukhov, the natural resources minister, said he might preemptively take away all the company's licenses. "The reasons are clear," he said. "A company whose controlling stake is frozen is hardly the right partner for a federal licensing agency."

In other developments in the case, one of Khodorkovsky's partners was granted Israeli citizenship in a bid for protection. Leonid Nevzlin, who fled Russia for Israel in August, controls voting rights for most of Khodorkovsky's company stock.

The continuing tensions prompted Anatoly Chubais, head of the Union of Right Forces political party, to propose on Wednesday that his group work with the progressive Yabloko party to support a common set of candidates in the Dec. 7 parliamentary elections and the presidential election in March. "The events which have taken place in Russia in the last few weeks have demonstrated dangerous signs that the political course of the country might be revised," Chubais wrote in a letter to the leader of Yabloko, Grigory Yavlinsky.

But Yavlinsky, who is organizing a demonstration on behalf of Khodorkovsky for Friday, the 86th anniversary of the October revolution, rejected the idea of backing a single presidential candidate.


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Presidential Elections 2004

Washington Post, November 6, 2003

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