- The Washington Times - Tuesday, December 28, 2004

MOSCOW (Agence France-Presse) — A top economic adviser to Russian President Vladimir Putin yesterday slammed the government’s takeover of the main asset of oil giant Yukos as the “swindle of the year” and warned of growing state intervention.

In unprecedented criticism from a government official regarding the destruction of Russia’s top oil company, Andrei Illarionov accused the Putin administration of using “the money of Russian citizens” to strip Yukos of its core asset.

“This year in the category of swindle of the year, the winner is the sale of Yuganskneftegaz to a mystery company … and then the acquisition of this firm by Rosneft,” the state-run oil producer, the free-market Kremlin economic adviser told reporters.

Mr. Illarionov said the riddle of the year was to discover the source of money for the takeover of Yukos’ main production arm, which was sold in a secretive Dec. 19 auction for $9.35 billion.

The money could “only have come from the state budget because no other company had the sufficient funds,” he said. “The money was taken from the citizens of this country.”

Gazprom, the state-controlled gas monopoly, had been seen as the likely winner of the forced auction, but it withdrew from the bidding because of a U.S. legal injunction.

Yuganskneftegaz, a company that pumps 1 million barrels of oil a day and owns 17 percent of Russia’s vast oil reserves, was sold to the previously unknown Baikalfinansgroup.

Rosneft, which is to merge with Gazprom into a new state-run energy corporation, subsequently announced it had bought Baikalfinansgroup.

Analysts said the sale, officially to pay off $27.5 billion tax claims levied against Yukos, was a means for the Kremlin to reassert control of the strategic energy sector and crush a powerful political opponent, imprisoned Yukos founder Mikhail Khodorkovsky.

The attack on Yukos and Mr. Khodorkovsky is thought to have been orchestrated by an influential group of former KGB hard-liners who surround Mr. Putin, himself a former spymaster.

Mr. Illarionov lamented the “destruction of the most efficient oil company in Russia” and described the move as “expropriation.”

The economist did not rule out that other Russian companies may suffer the same fate.

Comparing the effective nationalization of Yukos to that of the Venezuelan oil sector in 1976, Mr. Illarionov predicted a slowdown in Russia’s growth “because of the intervention of incompetent bureaucrats in the economy.”

Reformist members of the Russian government have been privately aghast at the campaign of destruction against Yukos, which they have been powerless to stop.

Now other firms have come under fire as analysts warn that government officials appear to have a green light to go after the private sector.

One of them is Russia’s largest cell phone operators, VimpelCom, which faces $157 million in tax claims that are seen as the result of a commercial dispute with a government minister.

In a letter published in a business daily yesterday, Mr. Khodorkovsky accused unscrupulous bureaucrats of taking over the levers of power to line their pockets and said that would spark popular discontent sooner or later.

“They know the state machinery exists to serve their personal interests,” said the billionaire tycoon who stands accused of fraud and tax evasion and faces up to 20 years in prison.

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