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Khodorkovsky bankrolled opposition

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ANALYSIS-Russia's new slap at YUKOS a worry for foreign oil
Reuters, 10.23.03, 6:50 AM ET

By Melissa Akin

MOSCOW, Oct 23 (Reuters) - Russian prosecutors, already pressing criminal charges against senior figures in oil major YUKOS, now plan to examine the company's observance of drilling licences -- a move which could scare off foreign investors.

Prosecutors have asked regulators at the Natural Resources Ministry to make the checks into YUKOS, seen as a potential acquisition target for U.S. giant Exxon Mobil Corp.

At the same time, the ministry will probe projects run by Royal Dutch/Shell and Exxon itself.

Analysts say the production assets of foreign majors who have ploughed billions of dollars into the Russian oil industry are being dragged into a political fracas around YUKOS, and the move is likely to shake foreigners' resolve to invest any more.

Alfa-Bank chief strategist Chris Weafer said a review of licences was tantamount to a review of the privatisations that created Russia's booming oil industry.

That is something President Vladimir Putin swore would not happen, even as prosecutors' probes around YUKOS widened.

Investors felt a chill when Russian prosecutors launched their campaign against the tycoons who own YUKOS, but quickly wrote it off as a political ploy by the Kremlin to bring a powerful, rebellious 'oligarch' to heel in an election season.

"Dealing with the tax regime, prosecutor general's office investigations, pipelines, these are all daily risks and daily activity in the oil industry. The one absolute sacrosanct is any question over the ownership of the assets," Weafer said.

Oil companies sometimes miss deadlines written into licence agreements. But in the past, the Natural Resources Ministry has accepted their reasons and re-negotiated, analysts say.

With billions in Western investment now flowing into Russia's booming oil industry, and a record $7 billion equity investment by BP already done, Exxon is tipped to become the biggest investor yet.

Putin, hailed for stabilising the economy and putting out the welcome mat for foreign capital, has said the U.S. major is negotiating a partial takeover of YUKOS, although the companies have refused to comment.

YUKOS is newly merged with rival Sibneft to create the world's fifth largest oil major, with a combined market value of around $40 billion.

Some analysts however said Exxon would not be easily put off from taking a slice of YukosSibneft.

"(Exxon) is going to be talking at the Putin level and at the end of the day the comments it is making seem to be unambiguously in favour of foreign direct investment. When you get past the media theatrics, that is going to be more important than these issues," said Paul Collison of Brunswick UBS.


Weafer said with the licence review hanging in the air, investors needed immediate reassurance from Putin, who spent this week in Thailand at an Asia-Pacific summit.

"The bit that concerns people, apart from a review of privatisation, is that Putin might have lost control of the process," he said.

"The real fear is that there is now a bunch of people at the top of the presidential administration who have a different agenda to that publicly stated by the president."

He said the licence review was likely a result of prosecutors' "over-enthusiasm" and could be slapped down quickly.

One of CEO Mikhail Khodorkovsky's fellow YUKOS shareholders is facing charges for theft of state property and another for tax evasion. Prosecutors say more charges against YUKOS management may follow and YUKOS tax payments are under scrutiny.

Khodorkovsky, who has bankrolled opposition parties and speaks critically on sensitive state matters such as the gas pipeline monopoly, says he is caught in a Kremlin war of influence ahead of March presidential elections.

"This conflict has not been settled and it's looking less likely that it's going to be settled. The market hoped that the conflict would not touch the company, just its shareholders," said Kakha Kiknavelidze of Troika Dialog.

"This shows that the company itself is now being dragged into the conflict. This is even more negative for investors."

Copyright 2003, Reuters News Service

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