- The Washington Times - Tuesday, December 21, 2004

From combined dispatches

The Bush administration yesterday protested Russia’s auction of Yukos’ main oil production unit and warned the sale could have a “chilling effect” on foreign investment in Russia.

“We are disappointed that Russia went ahead with the auction of the Yukos subsidiary,” White House spokesman Scott McClellan told reporters.

President Bush could raise the issue when he meets on Feb. 24 in the Slovak Republic with Russian President Vladimir Putin. “The president does bring up the concerns that we have when he meets with President Putin,” Mr. McClellan said.

The spokesman’s toughly worded statement on Yukos stood in contrast to Mr. Bush’s pledge on Monday not to let disputes get in the way of good relations with Mr. Putin, a key ally in the war on terrorism.

Mr. Putin threw his weight behind the controversial sale of top oil firm Yukos’ core asset Yugansk yesterday despite a threat from the stricken company to escalate its legal battle in foreign courts.

Mr. Putin did not identify the owners of Baikal Finance, which was unknown before it acquired Yugansk in Sunday’s auction.

The sale of the unit for $9.3 billion was ordered to raise funds to help pay Yukos’ $27.5 billion back-tax bill.

“We had hoped for a solution that would allow for the legitimate enforcement of tax laws but avoid harming investors, especially American investors,” Mr. McClellan said.

“We have communicated to the Russian government repeatedly that its handling of the Yukos matter could have a chilling effect on foreign investment in Russia and affect its role in the global economy,” Mr. McClellan added.

Mr. McClellan said the administration believed it was “Russia’s responsibility to seek greater integration into the world economy, to create an environment governed by the protection of property rights and rule of law, and to restore confidence in its political legal and judicial institutions.”

Mr. Putin yesterday suggested that the subsidiary’s new owners could eventually link up with another Russian energy company — or even a Chinese conglomerate.

The Russian president has been keen to cultivate political and economic ties with China and India, in part as a counterweight to the United States and the European Union roles in global politics. Observers say the creation of a Russian energy giant to fuel their booming economies could play a vital role in cementing those relations.

Mr. Putin’s comments yesterday appeared to confirm market expectations that the heart of Yukos would ultimately wind up in the hands of state-controlled natural gas giant Gazprom.

Acquiring Yuganskneftegaz — which pumps about 11 percent of Russia’s oil — would make Gazprom an international oil-and-gas energy titan.

“As far as I understand and am informed the auction was conducted in strict accordance with Russian legislation,” Mr. Putin said at a news conference in Schleswig, Germany. “I expect that all further actions will take place in accordance with the law.”

Late yesterday, Gazprom made a surprise announcement that it had sold off its newly created oil company Gazpromneft — a holding company that had been widely expected to buy Yuganskneftegaz.

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