THE NEW YORK TIMES: Yukos Auction Deepens Doubts of Investors: "MOSCOW: It took less than six minutes on Sunday to drive Russia back in time.": “After successfully luring billions of dollars from foreign investors who believed that capitalism was finally making strides in Russia, Moscow switched directions on Sunday with a snap auction to dismantle the oil giant Yukos that set off criticism both at home and abroad.”: “Stanislav A. Belkovsky, president of the National Security Institute in Moscow, said on Monday that it was "just a deal for the redistribution of property by a criminal group with a mission to get control over the basic financial flows of the country, just as in the 1990's.": “As for President Vladimir V. Putin, Mr. Belkovsky added, "We should view him this way: as the chief of this criminal group." (ShellNews.net) 21 Dec 04

By ERIN E. ARVEDLUND and JAD MOUAWAD

Published: December 21, 2004

MOSCOW: It took less than six minutes on Sunday to drive Russia back in time.

After successfully luring billions of dollars from foreign investors who believed that capitalism was finally making strides in Russia, Moscow switched directions on Sunday with a snap auction to dismantle the oil giant Yukos that set off criticism both at home and abroad.

The sale of the largest subsidiary of the country's top oil producer was hardly a fair and open process, some Russians said. Stanislav A. Belkovsky, president of the National Security Institute in Moscow, said on Monday that it was "just a deal for the redistribution of property by a criminal group with a mission to get control over the basic financial flows of the country, just as in the 1990's."

Not long ago, Mr. Belkovsky was closely aligned with the Kremlin, but he has since turned into an ardent critic. As for President Vladimir V. Putin, Mr. Belkovsky added, "We should view him this way: as the chief of this criminal group."

Even state television mocked the proceedings, suggesting that the sale of the Yukos unit Yuganskneftegas to an unknown entity for $9.35 billion was stage-managed. Now, despite Mr. Putin's promise of a fair and transparent handling of the Yukos affair, the latest example of the Kremlin's strong-arm business tactics threatens to scare investors away.

Russia has increasingly been seen as an alternative to Middle Eastern countries for new sources of crude oil. And the country has re-emerged from its post-cold-war slump as one of the world's top oil producers, running neck and neck with Saudi Arabia. Western companies like BP, ConocoPhillips and Total, have all made significant investments to acquire a foothold.

But as a result of the Kremlin's treatment of Yukos over the last 14 months, business sentiment toward Russia has been changing, with capital flows moving out of the country as the perception of the risk of doing business has increased.

J. Robinson West, the chairman of PFC Energy, a company based in Washington that advises oil companies, said the mystery shrouding the Yukos auction would add to the malaise in the Russian business environment.

"Right now this whole business is causing alarm to investors," Mr. West said.

The Yukos subsidiary auctioned on Sunday pumps a million barrels of oil a day, about 11 percent of the country's total production - more than OPEC oil producers like Qatar or Indonesia. It was auctioned to pay for part of the $27.5 billion in taxes the government has claimed that Yukos owes.

Even on Monday, little information surfaced about the winning bidder, Baikal Finans Group, a company registered in a provincial Russian town. Meanwhile, the largest auction in the country's post-Soviet history has thrown Russia's commitment to transparency and legal due process into doubt.

"We think the case has eroded Russia's reputation as a place to do business and eroded confidence in Russia's legal and judicial institutions," a State Department spokesman, Richard Boucher, told reporters at a news conference on Monday.

For some, the Kremlin is only stepping in to correct the chaotic privatization process of the 1990's, when important Russian industries were sold at discounted prices to politically connected groups under murky circumstances. Now, Mr. Putin is seeking to regain control over some of the assets.

"Russia is acting like any oil producer with a strong dependency to oil revenue," said Robert Mabro, chairman of the Oxford Institute for Energy Studies. "You've got to compare Russia to other oil producers like Iran or Saudi Arabia, not democracies like Denmark or Holland. After 80 years of communism, you don't turn into a liberal democracy overnight. That's a romantic notion that has no historic foundation."

But in Russia, where criticism of Mr. Putin and the Kremlin is rare, the auction seemed so orchestrated that a lawmaker, Dmitri Rogozin, the leader of the nationalist Rodina party, which has had close ties to the Kremlin, called on Monday for an investigation.

"We suspect that the auction was not organized in a transparent manner," Mr. Rogozin said.

The latest twist in the Yukos affair cast in sharp relief all the contradictions of the country's transition to capitalism under Mr. Putin.

“It should be clear to even the most Pollyannaish analyst that this is not a one-off example of political deviance," said Ian Bremmer, the president of Eurasia Group, a political risk consulting company based in New York. "There's no question that Russia has moved closer to the Saudi model than to the American model."

Despite the heavy-handed tactics, the Russian sale did not happen in an international void. A bankruptcy court in Houston last Thursday issued an injunction barring Gazprom, Russia's natural gas monopoly, and its lenders from participating in the auction.

Gazprom, which was widely expected to snap up Yuganskneftegas, never even submitted a bid on Sunday, mainly because Deutsche Bank backed out at the last minute after the injunction.

Baikal applied as a bidder only on Friday - a day after the injunction - and it was not named in the Yukos petition.

If Baikal does not pay, the government, by default, takes over Yuganskneftegas, according to Aleksander Buksman, head of the Moscow department of the Russian Justice Ministry. In addition, the payment day has become increasingly flexible: the buyers now have until Jan. 11, not Jan. 2, Interfax quoted Mr. Buksman as saying.

Oil industry analysts said Baikal was probably a shell company. In time, a Kremlin-approved energy company like Gazprom or Surgutneftegas, two of the few Russian oil companies with enough cash to venture a billion-dollar bid without outside financing or bankers, will emerge as the true owner.

In his second term, Mr. Putin has turned away from economic reforms such as deregulating energy prices and ridding business of endemic corruption. Instead, he has moved to consolidate the Kremlin's hold over strategic sectors like energy or telecommunications.

"Russia is one of the most gray countries in the world," Mr. Bremmer of Eurasia said. "There are some sectors of the economy that are booming and you have this tremendous undermining of the rule of law impacting key industries like energy or telecoms. Even if you're a BP and you thought you were big enough, this is a problem. You can get hurt."

Until Sunday's bizarre auction, investors were looking forward to the end of the Yukos affair, hoping a state-run process would bring finality to the yearlong prosecutorial attack against the company.

Instead, new uncertainty looms about who owns some of the most valuable energy assets in Russia, and whether they will end up in the hands of new and powerful business elites or simply revert to the state, which could again try to fold the assets into Gazprom.

"We were hoping for unpleasant certainty, as opposed to what we have now, which is prolonged uncertainty," said William Browder, who runs the Hermitage Fund in Moscow.

Now, Mr. Browder said, the Yukos assets could end up in the hands of Kremlin bureaucrats. "That would the transfer of enormously valuable assets," he said, "to another group of rich guys, which means Russia hasn't evolved from crony oligarch days of past. That would be major step back for Russia."

Erin E. Arvedlund reported from Moscow for this article and Jad Mouawad from New York. Steven Lee Myers contributed reporting from Moscow.

http://www.nytimes.com/2004/12/21/business/worldbusiness/21yukos.html