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Kremlin Tempers Attack On Yukos

President Vladimir Putin's efforts to minimize the economic fallout from the Yukos affair unexpectedly breathed new life into a collapsing market Friday, and a stern warning to prosecutors Sunday via his new chief of staff suggested he was determined to contain the damage.

In his first public statement about the legal assault on Yukos since succeeding Alexander Voloshin as presidential chief of staff late Thursday, Dmitry Medvedev said prosecutors should think twice about the economic impact of their actions.

Specifically, Medvedev, who is also board chairman of state-owned gas giant Gazprom, questioned the legal effectiveness of the unprecedented move by prosecutors last week to freeze more than $12 billion in YukosSibneft shares, which resulted in one of the largest sell-offs since the 1998 crisis.

Political analysts polled Sunday said Medvedev would only have made those remarks if Putin had approved them, and that they appeared to be an attempt not only to assuage the global investment community, but also to avoid a potentially damaging split with Prime Minister Mikhail Kasyanov.

Kasyanov, an ally of Voloshin, who tendered his resignation after the arrest at gunpoint of Yukos CEO Mikhail Khodorkovsky on Oct. 25, broke ranks with the Kremlin on Friday by warning that the freezing of 44 percent of Yukos was a "new phenomenon" with consequences that were impossible to predict.

Medvedev's remarks came as two leading British papers reported that Khodorkovsky had handed over voting rights to his shares in Yukos to an influential member of the Rothschild banking empire, Lord Jacob Rothschild.

Yury Kotler, spokesman for Menatep, the parent company of Yukos, denied the reports, which ran in the Sunday Times and the Sunday Telegraph. He said Leonid Nevzlin, a core Yukos shareholder now in exile in Israel, had become the sole beneficiary of the trust that holds most of Yukos' stock as soon as Khodorkovsky was jailed on charges of fraud and tax evasion.

The legal assault on Yukos kicked into high gear in July with the arrest of Yukos co-founder and billionaire Platon Lebedev. In the weeks and months that followed, prosecutors turned up the heat with a series of raids on affiliated companies, culminating with the dramatic pre-dawn arrest of Khodorkovsky by a team of Federal Security Service agents while his plane was refueling on a Siberian runway.

Analysts from across the political spectrum have said the move comes in response to Khodorkovsky's attempts to encroach on Putin's political power base -- in clear breach of a tacit agreement Putin reached with the oligarchs shortly after he was elected president. If you want to keep your assets, he essentially told them, stay out of politics.

Putin, however, compared the attack on Yukos to probes launched in the United States against Enron and WorldCom, according to participants of the meeting.

Putin also dangled other carrots to keep investors interested in Russia. Most importantly, he promised it would be a matter of "months, not years" before the "ring fence" that forbids foreigners from owning domestic Gazprom shares is lifted. Foreigners interested in investing in Gazprom currently must buy American depositary receipts, which cost about double what domestic shares cost. Minority Gazprom investors have lobbied long and hard to level the trading field, which will likely lead to a radical revaluation of the company.

Gazprom shares at home and abroad soared on the news.

Despite Putin's assurances, investors say the onslaught on Yukos has raised serious doubts about Russia's commitment to property rights.

Even though Putin insisted at the meeting that the aim of the stake freeze was to secure collateral for the fraud charges against Khodorkovsky, most investors and analysts seemed to think it was inevitable that Khodorkovsky would be forced to give up control of Yukos.

In a sign that the licenses Yukos holds to develop oil fields may be under threat, the Natural Resources Ministry on Friday handed the temporary license Yukos held to develop the vast Talakanskoye field in eastern Siberia to Surgutneftegaz.

Surgut now has the inside track in the tender for the permanent rights to the field, which is scheduled for the second quarter of 2004.

The company's shares rocketed 13 percent on the news.

(The Moscow Times 03.xi.03)

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