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BUSINESS

Russian Tycoons Face the Heat

By Sergei Blagov


MOSCOW - The ongoing controversy around Russia's top oil company, Yukos, has prompted fears that the Kremlin might review the privatizations of the 1990s. Meanwhile, Russian official statements remain somewhat ambiguous. Notably, President Vladimir Putin has called for a crackdown on economic crimes but said individual rights should be respected, carefully avoiding taking sides in a dispute around Yukos. Putin's previous comments were marked by his characteristic ambiguity and avoided any direct reference to Yukos. However, Putin spoke out against the use of detention for suspects accused of economic crimes.

The probe into Yukos began with the arrest in July of Platon Lebedev, a right-hand man of Russia's richest man, Yukos chief executive Mikhail Khodorkovsky. Lebedev is the billionaire chairman of the board of Group Menatep, the holding company that owns 61 percent of Yukos.

Prosecutors have charged Lebedev with defrauding the state of $283 million in the 1994 privatization of the Apatit fertilizer company. His arrest was followed by criminal investigations into its alleged tax evasion and role in several murders of officials and businessmen.

Khodorkovsky, who has backed some political parties that compete with the main pro-Kremlin party in December's parliamentary elections, has dismissed the accusations against his company and blamed a power struggle within President Putin's administration.

In 1995, Khodorkovsky bought Yukos, the second biggest oil company in Russia, and the fourth largest in the world, thus becoming a billionaire almost overnight. In oil reserves (11.4 billion barrels) Yukos is close to British Petroleum (about 12 billion barrels), which is worth some $180 billion. Khodorkovsky bought 78 percent of Yukos shares for $170 million and even this money was believed to be budget funds operated by Menatep Bank. Menatep Bank, which belonged to Khodorkovsky, had been entrusted with holding the auction to sell Yukos. There is therefore no big suprise that Khodorkovsky proved to be the winner.

Because the privatization laws that were in place in the 1990s left much to be desired, companies that were won in rigged auctions, like Yukos, are now open to attack. Recent public opinion polls, conducted in the wake of the first moves against Yukos, show that the vast majority of Russians are still bitter about that. One poll found that 77 percent think that privatization should be reviewed. Arguably, there are people in the Kremlin who agree.

Meanwhile, Russian Prime Minister Mikhail Kasyanov has publicly spoken out against jailing those found guilty of economic crimes. Kasyanov's open siding with Yukos is a sign that the struggle between Yukos and the prosecutors is only part of a bigger battle for economic leverage and power between the old elite that obtained power and vast wealth under President Boris Yeltsin and the former KGB colleagues of President Putin. Kasyanov, who has been a key government player since the early 1990s, is seen as a member of the old Yeltsin elite, also known as the Family.

The dispute around Yukos has been seen as an assault on Khodorkovsky for supporting opponents of Putin's allies in this December's parliamentary elections.

Even Guennady Zyuganov, leader of the Russian Communist Party, has described the assault on Yukos as an action in "barbarous forms." "As soon as Yukos leadership indicated their political ambition, a strike ensued," he told the journalists in Moscow earlier this month.

Until recently, Zyuganov has repeatedly denounced the 1990s privatizations as a sham. Yet earlier this year media reports have suggested that Khodorkovsky provided financial backing for Zyuganov's Communists, but he has denied this.

There should be no surprise that there have been warnings against reshaping corporate ownership rights in Russia. Undoing privatizations of the 1990s would be "suicidal" for Russia, Economic Development and Trade Minister German Gref has stated.

Moreover, yet another Russian oligarch, Vladimir Gusinsky, 51, was detained in August at the Athens International Airport on his arrival from Tel Aviv, where he has been living in self-imposed exile since fleeing Russia in 2000.

Russia's Prosecutor General's Office has reportedly filed a request to extradite Gusinsky from Greece. The charges are linked to the alleged embezzlement of a $250 million loan extended by state-controlled Gazprom to Gusinsky's former Media-MOST empire in the 1990s. The team investigating Gusinsky is headed by Salavat Karimov -- the same person who is investigating Yukos on suspicion of stealing state property.

In April 2001, Spain turned down a request from Russia to extradite Gusinsky, who holds Russian and Israeli passports and was living there after fleeing Moscow to escape what he called politically motivated prosecution over his media's critical reports of the Kremlin. Authorities denied they were muzzling independent media, saying they instead were investigating financial wrongdoings at Media-MOST.

The Kremlin crackdown on one of the country's business moguls is not just another twist in the ongoing political struggle -- it says a lot about the very nature of the political system, argues Lilia Shevtsova, a senior associate of the Carnegie Endowment for International Peace. Putin nor his praetorians had any intention of starting nationalization -- the president's hungry wolves were just hoping for a slice of the pie, she said.

It has been understood that by launching criminal probes President Vladimir Putin's administration wants to remind the tycoons that the should stick to business and stay out of politics.

"Should the state decide to launch a second bolshevik revolution, the consequences would be severe, yet that does not mean that nothing can be done to redress the abuses associated with privatization," said Marshall Goldman, associate director of the Davis Center for Russian and Eurasian Studies, Harvard University. "The state could raise, and make a strenuous effort to collect, taxes on both production and exports, but such measures would probably not be enough to satisfy public anger and resentment," Goldman said.

The odds then are that there will always be the threat that not only Putin, but future Russian leaders will also periodically feel tempted or pressured to harass other oligarchs, he said.