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Friday, June 20, 2008

The Kremlin Doesn't Need Another Yukos

18 June 2008 - The Moscow Times - The TNK-BP dispute promises to define Dmitry Medvedev's presidency in the same way that the Yukos bankruptcy defined Vladimir Putin's presidency. This makes the endgame of utmost importance to the Kremlin and investors alike. For all their differences, the Yukos and TNK-BP affairs share several key elements that helped determine the investment climate under Putin and could set the tone for Medvedev's next four years. Both cases have raised concerns about the rule of law. At Yukos, the company was singled out for tax and fraud claims that could have also been brought against many other companies. At TNK-BP, BP-affiliated employees have been curiously targeted by the Federal Security Service and the Federal Migration Service as the dispute escalated. Furthermore, the TNK shareholders have threatened to take their grievances to court, where any ruling might be suspect in the eyes of investors. Both the Yukos and TNK-BP cases have raised concerns about property rights. With Yukos, the owners of companies sold in shady 1990s privatizations worried about whether their property was at risk after prosecutors declared that Yukos owners had illegally acquired Apatit in 1994. Those fears seemed to be confirmed by the subsequent renationalization of most of Yukos' assets. At TNK-BP, BP is accusing the TNK side of using illegal corporate-raiding tactics to seize control of the company. Both the Yukos and TNK-BP cases are being perceived as politically motivated. At Yukos, former CEO Mikhail Khodorkovsky said the Kremlin targeted him over his political ambitions. At TNK-BP, observers say the dispute seems to be an attempt by a state firm like Gazprom of Rosneft to gain control of the company. The big difference between Yukos and TNK-BP, however, is that the Kremlin led the Yukos onslaught, while powerful business groups and businessmen appear to be using their political connections to put pressure on BP. This raises the specter that Medvedev either has chosen not to intervene or lacks full control the government. The image of a weak president who may genuinely want to introduce the rule of law but does not stop the use of federal agencies in business disputes could be worse for the economy than a strongman who initiates vendettas against disloyal tycoons. With few facts confirmed in the TNK-BP case, perception is of tantamount importance. The longer the dispute plays out, the more harm it threatens to inflict on the investment climate. The dispute has gone on long enough. The shareholders need to quickly reach a fair resolution, preferably without the courts. Finance Minister Alexei Kudrin hit the nail on the head on Tuesday when he said at an investors conference: "The conflict itself isn't as important as how it ends. The conflict should be resolved in a civilized way, then it won't do any harm."

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