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Volatile Politics Roil Russian Market

Yukos Oil shares are seized in a move against a foe of Putin. Leader's chief of staff resigns.

October 31, 2003|Robyn Dixon | Times Staff Writer

MOSCOW — Vladimir V. Putin faced one of the most challenging moments of his presidency Thursday after prosecutors froze a huge block of stock in giant Yukos Oil Co. and his chief of staff resigned.

The announcement of the resignation of Alexander S. Voloshin and the stock seizure sent shivers through the already battered Russian stock market, which fell another 8% on Thursday. The move against Yukos came after last weekend's arrest of the company's chief executive, billionaire Mikhail Khodorkovsky, on charges of fraud and tax evasion.

Both actions frightened the financial community, one of Putin's most important sources of support. Businesspeople see Voloshin as an ally and worry about the stock seizure, which marked the first time since the collapse of the Soviet Union that the state had reclaimed some control over a company it had privatized.

Khodorkovsky's arrest follows his support of opposition parties, and many see it as a political case initiated by the siloviki -- a Kremlin faction comprising former KGB associates of the president, himself an ex-spy.

In recent years, two other tycoons who opposed the Kremlin line went into exile to avoid prosecution. When rumors of Khodorkovsky's arrest circulated recently, however, he vowed he would not run.

Before the Russian prosecutor general's office began its pursuit of Khodorkovsky and close associates this summer, he was listed by Forbes magazine as the country's richest man, with personal wealth estimated at $8 billion. He was reported to be in talks about selling a stake in Yukos to Exxon Mobil or ChevronTexaco, and there was talk of building an oil pipeline to China.

The sense of chaos and uncertainty deepened after the resignation of Voloshin was confirmed late Thursday. Experts said his departure signaled a dramatic power shift at the Kremlin, linked to the rise of the little-known siloviki.

Voloshin reportedly resigned in anger at not being warned of Khodorkovsky's arrest. An advocate of free markets who is said to have supported Khodorkovsky, Voloshin was a holdover from the era of former President Boris N. Yeltsin.

The political maneuvers come amid concern that during Putin's presidency, the country has taken several steps backward. The last independent television station closed in June, and there has been an erosion of democratic institutions, with observers reporting irregularities, intimidation and even falsification in elections in Chechnya and St. Petersburg, both won by Kremlin-backed candidates.

Andrei Piontkovsky, director of the Center for Strategic Studies in Moscow, said Voloshin's exit left only one powerful group in the Kremlin: the former KGB officers, who are also known as "Chekists."

"The construction of an authoritarian system is very much underway now," he said. "The economic system will grow very static, but the sacred principle of private ownership will be preserved because these Chekists want to become very rich people too."

He predicted that Putin's policy of pursuing warm relations with the West would fade "because it was the Voloshin group who promoted this closeness."

In Washington, State Department spokesman Richard Boucher said the United States had been watching the Khodorkovsky situation carefully and was concerned about the rule of law and basic freedoms in Russia, but viewed the events as an internal Russian matter.

"As far as what the fallout and the effects might be, the economic or political, I think I'd have to leave that for the Russians to deal with and explain," Boucher said.

Putin named Dmitry Medvedev to succeed Voloshin. Medvedev, who went to the same university as Putin, is one of a large group the president brought to Moscow from his hometown of St. Petersburg.

On Saturday, Khodorkovsky was arrested at gunpoint on his plane in Siberia and jailed pending trial. He and associates Platon Lebedev and Vasily Shakhnovsky face charges of tax evasion and fraud against the state amounting to about $1 billion.

The prosecutor general's office said the Yukos stock was seized as security for the financial damage the three men had caused the state, implying that the shares could revert to the state if the Yukos officials were found guilty. The move blocks shareholders from selling their stock.

Yukos spokesman Alexander Shadrin called the action a gross violation of ownership rights.

Earlier Thursday, Yukos announced a $2-billion dividend to shareholders, which would net Khodorkovsky $730 million.

The frozen shares -- initially reported as a controlling stake but later confirmed to be 44% -- sent Russia's benchmark RTS stock index plunging 8% and Yukos shares plummeting 12.4% to $10.56 each. On Oct. 16, they were selling for $15.63.

After the market shocks, Putin held talks with a group of Russian and foreign investors, a meeting set before Khodorkovsky's arrest.

Participants later told reporters that Putin had reaffirmed his commitment to the market economy and said the Yukos case did not signal a campaign against business.

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