Publication: Eurasia Daily Monitor Volume: 2 Issue: 1

The effective nationalization of Yuganskneftegaz, formerly the embattled Yukos oil company’s main production unit, was completed on New Year’s Eve, when the state oil company Rosneft announced that it had paid for a 76.79% stake in Yuganskneftegaz and become its legal owner. A Yukos source told Interfax that Nikolai Borisenko, Rosneft’s senior vice president, and Vladimir Bulba, head of Rosneft-Purneftegaz, Rosneft’s main production facility, had visited Nefteyugansk, where Yuganskneftegaz is located, and that Bulba was presented to employees as Yuganskneftegaz’s new general director (Interfax, RIA-Novosti, December 31). Gazprom announced last September that it was taking over Rosneft to create what Prime Minister Mikhail Fradkov at the time said would be “a large company that in the future would be turned into a transnational company of world significance” (Washington Post, September 15, 2004). Many observers believed this new entity would be used as the vehicle for the state’s takeover of Yuganskneftegaz, which accounts for 11% of Russia’s total oil output.

In July Igor Sechin, deputy head of the Kremlin administration and a long-time ally of President Vladimir Putin, was made chairman of Rosneft’s board of directors. Sechin is described, as the Financial Times put it, “as one of the most influential figures” in the presidential entourage and “a key member” of the siloviki, the group of former security service officers who have risen to the top of Russia’s ruling hierarchy during the Putin era. Sechin is widely assumed to have been a KGB officer: he studied French and Portuguese at Leningrad State University, the president’s alma mater, and in the 1980s worked as a translator in Mozambique and in Angola — a cover often used by the KGB. According to the British newspaper, Sechin is “widely considered to be the ideologue of the attack on Yukos” and reportedly even “personally inspected the building where the sale of Yukos’ assets took place” (Financial Times, December 30).

A previously unknown company, Baikal Finance Group, won the December 19 auction for the Yuganskneftegaz majority stake with a bid of $9.3 billion. BFG surprised most observers by edging out the expected winner — Gazpromnefetegaz, the Russian natural gas monopoly’s newly minted oil subsidiary. Still, analysts were convinced that this was not an unscripted surprise and that the Kremlin was behind the Baikal bid. Indeed, Stanislav Belkovsky, who heads the National Strategy Institute and was until recently believed to have close contacts with the siloviki, said he believed Baikal was a “front for a group of state officials and businessmen” headed by Sechin (MosNews, December 22). Kommersant in its December 29 edition quoted an unidentified Gazprom official as saying that the $1.7 billion deposit Baikal had made in order to participate in the auction had been provided by Russia’s fourth-largest oil company, Surgutneftegaz, which is said to have warm relations with the Kremlin. According to Kommersant, Rosneft sold Gazprom a 70% stake in one of its affiliates, Sevmorneftegaz, for $1.7 billion so that the gas giant can repay Surgutneftegaz’s loan.

The picture changed a bit on December 30, when Industry and Energy Minister Viktor Khristenko announced that while the “consolidation of Gazprom and Rosneft assets is proceeding in a planned fashion and will be completed in January 2005,” Yuganskneftegaz would not be “among the assets being consolidated.” Yuganskneftegaz’s assets, he said, would be “spun off and transferred to a separate company, 100% owned by the state.” In addition, Khristenko said that the Chinese National Petroleum Corporation might buy up to 20% of this new company (RIA-Novosti, December 30; Moscow Times, December 31). There has been speculation that Sechin and Rosneft’s CEO, Sergei Bogdanchikov, could joint the newly created company (Financial Times, December 30).

Yukos spokesman Alexander Shadrin told Interfax that the company considers the Yuganskneftegaz sale to be “totally illegal,” and another company spokesman, Yevgeny Fokin, told the Los Angles Times that Yukos would sue the Russian government over its “misappropriated” property. “It is useless to seek justice in our courts so we will go to international courts,” he said (Interfax, December 31; Los Angeles Times, January 1).

Yukos’ ongoing protests over its treatment won fresh support on December 30 from President Vladimir Putin’s maverick economic adviser, Andrei Illarionov, who told Ekho Moskvy radio that the actions surrounding the Yuganskneftegaz sale are causing “colossal damage to the country.” Illarionov repeated his comment from a December 28 press conference that the Yuganskneftegaz sale was “the swindle of the year,” adding, “It is impossible to call the expropriation of private property anything other than a swindle, because we went through a very unhealthy period during the last century, [and] we know what the expropriation of private property is.”

In a further apparent show of solidarity, Illarionov visited Moscow’s Meshchanky Court on December 31 to attend a session of the trial of former Yukos CEO Mikhail Khodorkovsky and his business partner, Platon Lebedev (Interfax, December 31). The two core Yukos shareholders, who have been in jail for more than a year, are charged with large-scale fraud and tax evasion, among other crimes.

Public opinion, however, appears to be behind the Kremlin siloviki – judging, at least, by a poll conducted by the All-Russian Institute for the Study of Public Opinion (VTsIOM) in October-November. Asked by VTsIOM whether they thought other criminal prosecutions of businessmen would follow Khodorkovsky’s prosecution, 33% of the respondents answered “yes, and it is proper” while 10% answered “yes, but it is improper” (16% said they thought further prosecutions would not follow and 40% were not sure how to answer). Presented with a list of “events and processes” taking place in the country and asked which of these disturb them the most, only three percent of the respondents picked “criminal prosecutions of big business representatives.” (This response tied for last place with “restrictions on freedom expression in the national media.”) Growing alcoholism and drug addiction came in first place (picked by 52% of the respondents), followed by rising prices (43%), and the threat of new terrorist attacks (35%). Asked how Russia’s oil-and-gas sector should be developed, 45% of the respondents said it should be “completely nationalized,” 30% said it should be left in private hands but that state control over it should be increased, and five percent said that more foreign companies should be allowed to participate in Russia’s energy market (, December 23).