ILLARIONOV SAYS YUKOS AFFAIR IS POLITICAL

President Vladimir Putin’s increasingly outspoken economic adviser, Andrei Illarionov, has called the legal onslaught against Yukos politically motivated and said it should stop. Speaking at a Moscow press conference organized by the RIA Novosti new agency, Illarionov said the “most reasonable thing” would be to leave the embattled oil company alone and let it produce oil. No Russian oil company in recent years has extracted as much oil as Yukos, he noted, adding that the company was active on the world stage and the initiator of a large number of infrastructure projects that have “significantly improved the economic situation of the country.” The Yukos case is not only a legal case, but also “economic and political,” he said, adding that it has significance for the entire legal system of the country and is being used by regional administrations as a pretext for similar cases in their own domains. “We should do something with Yukos, or rather with those who are doing something to Yukos,” Illarionov said. “The Yukos affair has to be stopped if we want to halt the economic decline. Beating up the best national oil company is starting to have economic consequences.” Asked when the “political will” would be found to resolve the situation surrounding Yukos, Illarionov answered: “I think we won’t have to wait for long” (Newsru.com, MosNews, November 11). It seems fairly clear that he was not suggesting a resolution favorable to Yukos.

Newsru.com noted that most Kremlin and government officials have distanced themselves from the Yukos case and rarely speak about it publicly, and that when they do, they do not criticize the behavior of the tax and law-enforcement agencies. For example, another presidential economic aide, Igor Shuvalov, promised last month that if Yukos’ assets were sold to pay off its tax debt, it would be done “openly and publicly” (Interfax, October 28). That echoed comments in September by Finance Minister Alexei Kudrin, who told the Financial Times that the state would do “everything possible” to ensure that Yukos’ assets were sold off “in accordance with the law and in an absolutely transparent and market-oriented way” (Financial Times, September 13). But following press reports in October attributed to unnamed government officials and indicating that Yukos’ main production unit, Yuganskneftegaz, could be sold for a starting price of $3.75 – 4 billion, Illarionov said that it should not be sold off for less than the subsidiary’s projected total sales for this year — $17 billion (Interfax, October 15, 18; Ekho Moskvy, October 28). Dresdner Kleinwort Wasserstein, the German investment bank hired by the Russian Justice Ministry to appraise Yuganskneftegaz, has put a price tag of $14.7 – 17.3 billion on the facility (Moscow Times, November 1).

There has been some speculation that Illarionov’s frank criticism of the state’s treatment of Yukos could have a negative impact on his career as a presidential adviser. The case of Mikhail Kasyanov may be instructive in this regard. In the summer of 2003, the then-prime minister called the arrest of Platon Lebedev, the Menatep chief and core Yukos shareholder, “excessive,” and said that the situation surrounding Yukos was neither helping Russia’s image nor attracting potential investors. At the end of 2003, Kasyanov expressed concern about the freezing of Yukos’ shares. In February of this year, he was fired.

Whatever the case, Illarionov has been increasingly downbeat about Russia’s direction, economic and otherwise. He recently said that a “radical turn” in economic policy in August 2002 has negatively affected the country’s economic development and that Russia is “way down the current list” in terms of economic freedom around the world (RIA Novosti, November 8). Last month, he warned that a “climate of fear” that did not exist in Russia “a few years ago” represents “the biggest risk for our development, for the survival of our country.” “This is the result of many actions, including the case against Yukos, Russia’s most efficient oil company,” Illarionov said (Kommersant, October 14).

Meanwhile, there are indications that the state may be taking aim at other oil majors. Kommersant reported today (November 12) that the Federal Tax Service is carrying out “field checks” of Slavneft, Rosneft, Sibneft, and Tatneft concerning their tax payments for the year 2001, and that it has already billed another oil giant, TNK-BP, for unpaid taxes for that same year. “We note that if additional taxes are collected from these companies as strictly as from Yukos, total claims on them for 2001 may exceed $6 billion,” the newspaper wrote.

Experts have noted that virtually all large Russian oil companies employed tax-minimization schemes like those for which Yukos is now being prosecuted — loopholes that Yukos and other companies claim were legal. Be that as it may, Igor Shuvalov, the Russian presidential aide, suggested to reporters attending an investment conference late last month that other companies besides Yukos would be receiving bills for back taxes. “We must probe everyone, everyone,” he said. “And if I was responsible for tax discipline — against the background of Yukos — I would probe all the other oil companies, too. This is only the start of the road in relation to other taxpayers. Many oil companies used schemes that they call ‘tax optimization.’ Where it was illegal, they will have to pay in full” (Moscow Times, October 29).