Power PlayKremlin clampdown on Yukos hasn't stopped the dealmaking frenzy

[seemslikeadream]

Monday, Nov. 22, 2004
On the last Wednesday of September, Russia's second largest oil company, Lukoil, hoisted the Stars and Stripes up a flagpole outside its Moscow headquarters to celebrate a landmark deal: with a $2 billion bid, the U.S. firm ConocoPhillips had just won an auction for the Russian government's 7.6% stake in the firm. The two companies promptly announced a strategic alliance to develop oil reserves in the Russian Arctic and potentially work together in Iraq. For Jim Mulva, Conoco's president and chief executive, the deal amounted to a coup, giving Conoco access to 8 billion bbl. of proven oil reserves at relatively modest cost. Lukoil was delighted too because it is counting on the Americans to help it extract and market the oil more efficiently. But as Mulva and Lukoil president Vagit Alekperov toasted their accord with champagne, they were careful not to mention the one issue that overshadows the future of the Russian oil industry: the fate of Lukoil rival Yukos, the largest and most successful Russian oilcompany, which is being hounded out of business by the Kremlin.

A year ago, Mikhail Khodorkovsky, a billionaire who had built Yukos into an energy powerhouse, was arrested and put on trial for alleged fraud and tax evasion, charges he says were trumped up. Since then Yukos has been hit with a $17 billion bill for back taxes, and the government is threatening to auction off the company's most valuable asset to pay them. Most Yukos accounts have been frozen, making it hard to pay suppliers and staff. But the company has called a shareholder vote for December to decide whether to file for bankruptcy protection; a principal reason it hasn't already done so is that a majority of board members believe it would be impossible to find a Russian court willing to approve the petition. Indeed, the day before Conoco signed the Lukoil deal, the Moscow court where Khodorkovsky is on trial refused to allow a former German Justice Minister serving as an official European human-rights representative to speak with him. The Yukos case "has set the Russian judicial system back a decade," says Sarah Carey, a Washington lawyer who serves on the Yukos board. The company, she adds, "is like the mouse being tortured to death by a cat — or a tiger."

It's an odd time for an oil rush. The West's leading oil companies are making a run for Russia just as President Vladimir Putin consolidates his power and reasserts control over the energy business (among other things). In recent months, Putin has muzzled the independent press and abolished popular elections of regional governors. Western companies may rationalize that increased government control over the press won't affect their deals, but interference in the economy — increased restrictions on foreign ownership, the assault on Yukos and big shifts in taxation — has raised concerns about Putin's commitment to the rule of law. Many Russians are voting with their wallets. This year capital flight will easily exceed $10 billion, up from $2 billion last year. Even some top officials have misgivings. Andrei Illarionov, Putin's chief economic adviser, said recently that the Yukos affair is "a Pandora's box, and it was a serious mistake to open it." Why, in such a seemingly hostile and risky environment, does Big Oil think Russia is a good investment?

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http://www.time.com/time/globalbusiness/article/0,9171,1101041122-782122,00.html

[Wright Patman]

1. This doesn't compute

with other things I have read. The dollar is falling in value against the ruble. The high oil prices are adding billions per month to Russia's currency reserves.

The capital flight must be going on among the so-called "oligarchs" who stole Russia blind during the Yeltsin era. I don't see Putin as a nice guy by any means, but this story is slanted against him.

Every time he acts in Russia's national interest rather than that of the City of London-backed oligarchs or Western oil companies, he is going to be slammed in our media. We should know by now that our media always have an agenda. It is not "liberal": it is Western/U.S./U.K.-controlled globalism.