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#7 - JRL 7269
Wall Street Journal
July 29, 2003
Russian Official Says Probe Of Yukos Is Worrying Putin

MOSCOW -- President Vladimir Putin is concerned about the damage an intense conflict between prosecutors and oil giant OAO Yukos is doing to Russia's image and economy, but a resolution to the situation could take time, a senior Russian official said Tuesday.

"His reaction is negative. He understands that the events are doing systemic harm," said the official, insisting on anonymity. "The political task is to get out of this situation as soon as possible," he added. "The president has given all the necessary signals repeatedly."

Publicly, Mr. Putin hasn't directly commented on the conflict, which began July 2 with the arrest of Platon Lebedev, a billionaire Yukos shareholder and chairman of the big Menatep financial group, on fraud charges related to the 1994 privatization of a fertilizer company. He remains in jail in Moscow. Prosecutors have since opened a range of other investigations into Yukos executives, including a murder probe. Yukos officials deny any wrongdoing and say the charges are politically motivated.

The sudden prosecutorial focus on Yukos has jolted Russia's stock market, knocking about $7 billion off the value of Yukos and reversing a major rally in Russian stocks as investors worried that the other privatization deals that lie at the base of many of the country's largest companies could be questioned. It's also shaken foreign investors' confidence in Russia, according to Russian and foreign officials, casting doubt on the relative political and economic stability that had been the main fruits of Mr. Putin's presidency.

Tuesday, the official said Mr. Putin will not allow a wholesale review of the privatizations of the 1990s, most of which were conducted in haste during a period of constantly changing and often-contradictory laws.

"What we have to do now is gradually get away from that period of privatization without allowing a review of what happened and ensure the observance of the rules of the game now," the official said. The government is considering some kind of amnesty or shortening of the statute of limitations on privatization deals to help smooth the transition, he said, noting that many legal issues remain to be worked out.

Yukos has said it is caught up in a conflict between factions within the Kremlin vying for power ahead of presidential elections in March, but the Russian official Tuesday said the presidential administration isn't the source of the attack on the company. He rejected suggestions by outside analysts that the Kremlin was using the conflict in an attempt to restrain the political ambitions of Yukos or Chief Executive Mikhail Khodorkovsky.

Instead, the official said Yukos has been targeted either by competitors, who took advantage of corruption in the prosecutor's office to have the investigations opened, or by a faction within the prosecutor's office itself that didn't realize the consequences of its actions. He said Mr. Putin found out about the probes only when Mr. Lebedev was arrested.

Because the probes are legal, the official said, Mr. Putin can't intervene directly without seeming to be meddling in the judicial process. He also can't be too publicly supportive of big business given strong public resentment of Russia's business barons, the official said.

"These situations are usually easier to get into than they are to get out of," the official said.

Since the arrest, Mr. Putin has limited his public comments to general statements that people suspected of economic crimes shouldn't be jailed before trial. Earlier Tuesday, he told law-enforcement officials in the Kremlin that economic investigations need to be conducted with an eye to the rights of citizens and not in the form of a campaign. "Methods and means of work should be suited to your tasks and strengthen the economy," he said in remarks shown on Russian television.

The sudden prosecutorial focus on Yukos has jolted Russia's stock market, knocking about $7 billion (€6.1 billion) off the value of Yukos and reversing a major rally in Russian stocks.

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