#8 - JRL 7269
Russia won't undo privatisation, official says
By Richard Balmforth

MOSCOW, July 30 (Reuters) - A senior Russian official, seeking to reassure Western investors over a police probe into oil giant YUKOS <YUKO.RTS>, insisted authorities would not unravel the privatisation programmes that revolutionised the post-Soviet economy.

But the official, who spoke to foreign journalists late on Tuesday on condition of anonymity, conceded the affair was hurting Russia's image and the foreign investment climate, calling the problem a tough one to resolve.

The July 2 arrest of a major YUKOS shareholder on theft charges arising from a 1994 privatisation deal, and a subsequent police raid on YUKOS premises, have hit the company's stock price and raised fears among foreign investors of capital flight and political instability.

It has also unnerved Russia's super-rich, whose colossal wealth came from the 1990s sale of assets by the state, often at bargain prices.

The official tried to calm fears that authorities might re-examine the privatisation deals of those heady days.

While many concede the murky circumstances in which deals were often struck, they fear any attempt to renege on them would stir up uncertainty and scare away investors who are eager for more stability in Russia's freewheeling business climate.

"The position of the President (Vladimir Putin) is that privatisation will not be revised," the official said.

Putin, in a rare comment on the affair on Tuesday, steered a middle course in the wrangle, calling for a crackdown on economic crime while saying individual rights must be respected.

"You should take tough and consistent action exclusively within the framework of the law, but not forget the legal rights and interests of citizens," Putin told a deputy interior minister in charge of economic crimes.

NO SUGGESTION OF KREMLIN CONSPIRACY

The detention of YUKOS shareholder Platon Lebedev and a tax inquiry into the oil giant itself are seen by many analysts as a direct assault on YUKOS boss Mikhail Khodorkovsky, Russia's richest man, for supporting opponents of pro-Putin groups in this December's parliamentary elections.

Some analysts see the affair as a power struggle between Kremlin officials close to ex-president Boris Yeltsin and those appointed by Putin, who have links to the security forces.

But the official would not be drawn into supporting theories of Kremlin foul play.

He said Putin had no foreknowledge of impending police action, but was in no position now to impede an investigation by the prosecutor-general's office.

"The President and the leadership find themselves in a difficult situation," he said.

Pressed for an explanation of who was behind the police move on Lebedev and YUKOS, the official said privatisation deals had been stitched together in imperfect conditions in the 1990s without any real legal framework.

"This means you can, in practice, challenge any privatisation action and find fault, irregularities, with some," he said.

He went on to suggest the police action may have been triggered by information passed on by YUKOS's competitors. He added at one point: "This is a typical Russian situation."

The main task for Putin and the leadership was to find a way out of a situation that had done serious harm to Russia's image, he said, but offered no clear way out.

Some observers had expected Putin to end the dispute when he returned from a visit to northwestern Russia last week, but he seems determined not to take sides, in public at least.

The row became further inflamed on Monday when prosecutors said tax evasion had been added to charges against Lebedev. The main charge against him is theft of state property.