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Russia: After a Long, Hard Winter, Yukos Sees Its Prospects Improving

It's been a tough couple of months for Russia's Yukos oil giant. But there may be light at the end of the tunnel. The company's stock is rising on the news that it will not go through with a questionable merger with the Sibneft oil company. And yesterday, a former top manager for Yukos walked away from his tax-evasion conviction with a far lighter sentence than the prosecution had sought. Analysts say the company's position is on the rise. But is Yukos still the same company it was since the arrest and resignation of its charismatic CEO, Mikhail Khodorkovskii?

Prague, 6 February 2004 (RFE/RL) -- Yukos, Russia's embattled oil giant, is showing signs of a comeback.

The company has seen its prospects fall precipitously since last year's arrest of CEO Mikhail Khodorkovskii and other top managers on charges of tax evasion and fraud.

But after a bitter winter, Yukos is experiencing a rebirth. Lev Snykov, an analyst with the Moscow-based NIKoil investment firm, says Yukos stands a very good chance of recovering its market position after a period of sharp stock depreciation. "Generally speaking, Yukos remains a stable operation," he said. "It remains a stable business because of the increase in exports and high oil prices. Yukos has more than $3 billion in cash reserves as of last year's nine-month balance. Fundamentally, Yukos remains a very strong company."

"It seems that the authorities have started to realize that putting excessively aggressive pressure [on Yukos] will affect Russia's position internationally as well as the personal position of Vladimir Vladimirovich Putin."
In business terms, Snykov says, Yukos remains much the same company it was last October, when federal security agents stormed a private plane, arresting Khodorkovskii in a move many observers said was ordered by a government anxious to silence the politically outspoken -- and liberal-leaning -- billionaire.

Even now, Khodorkovskii remains in a Moscow prison and the company's management has undergone a necessary makeover, with major Yukos shareholders removed from executive positions. Snykov says those changes have had a positive affect on the company's image, removing the taint of political scandal and allowing the firm to focus exclusively on business.

"The most important thing is that nothing has changed in the company's operations and strategy. During [the past year], Yukos has shown very good financial and operational results. Until the end of 2003, Yukos remained the most successful Russian oil company," Snykov said.

Dmitrii Tsaregorodtsev, an analyst with the Prospect investment company, agrees the new Yukos management team -- led by Semen Kukes -- is having a positive affect. "The most noticeable figure is Semen Kukes," he said. "He is known as a well-paid specialist [with no investments in the company]. On the one hand, he is an absolutely credible contact for the Western partners. On the other hand, he perfectly understands the realities of Russia and, to a certain extent, he is more inclined than anyone from the former management team to compromise [with the authorities]. His main goal is to preserve the company. The shareholders may come and go. But for the company's sake, its integrity must remain."

Preserving Yukos's international image is important for the new management team, in terms of aiding both the company's international projects as well as the future of its integrated operations.

The Russian company Menatep, which holds a 44 percent stake in Yukos, is rumored to be considering selling its shares. If it did, Yukos would undoubtedly seek out a lucrative deal with a Western company to buy up the stake. To that end, Tsaregorodtsev says the new management is doing its best to protect the assets of the company's foreign minority investors -- which include the Swiss bank UBS and a U.S. state pension fund.

So many of the company's prospects are good. But all the same, Tsaregorodtsev says, it is not possible to say that Yukos has emerged entirely unscathed from the Khodorkovskii affair. "I think that Yukos has changed. In the first place, it lost some of its ambition," he said. "In other words, the company was clamped down on, held by the bridle, and stopped, you know? And on top of that, one of the real power centers has completely disappeared from the [Russian] political arena. The center that was transmitting extensively to Russia's Western ideas."

Then there is Yukos's near-merger with Sibneft. The deal was recently called off, but even the talks weren't cheap: Yukos paid some $3.7 billion to buy out 10 percent of its shares from the market, as part of the merger agreement. Now, with market rates falling, Yukos is unlikely to recover the money it spent.

Moreover, changes in Yukos's credit ratings and company image have seriously damaged its ability to acquire foreign assets -- something Tsaregorodtsev says was once a key facet of company strategy. Analysts also doubt Yukos will play a dominant role in developing attractive new prospects in oil-rich Eastern Siberia. These operations are likely to expand energy cooperation between Russia and China.

And Yukos remains the target of political attacks. Russian media sources recently reported Yukos had contributed to the campaigns of candidates opposing Vladimir Putin in the March presidential elections -- much as the company had supported opposition parties seeking to counterbalance pro-Kremlin centrists in parliamentary elections last December. One of the presidential candidates mentioned in the media reports was Irina Khakamada, a co-founder of the Union of Rightist Forces.

Khakamada categorically denied the reports in an interview with RFE/RL. "Yukos is not financing [my presidential campaign] and has nothing to do with it," she said. "It is a company that is experiencing huge problems and is preoccupied with its market position. And as you know, they are removing all investors [from the management]."

Russian political analyst Andrei Piontkovskii says he believes Yukos has suffered only minimal business losses because in the end, the Kremlin got exactly what it wanted -- the removal of Yukos shareholders from Russia's political scene. So what are the prospects for settling the Yukos conflict now that Russian authorities have achieved their goal?

"Only the head of state can give the final answer to this question," Piontkovskii said. "It is obvious that the initiative for the attack on Yukos comes from him. It seems that the authorities have started to realize that putting excessively aggressive pressure [on Yukos] will affect Russia's position internationally as well as the personal position of Vladimir Vladimirovich Putin."

Yesterday's resolution of a Yukos tax evasion case may be a sign the Kremlin is softening its stance on the oil giant. A Moscow court found former top manager Vasilii Shakhnovskii guilty but allowed him to go free, due to what the court called "changed circumstances." The court also cleared Shakhnovskii of separate forgery charges. Shakhnovskii voluntarily paid some $1.8 million in back taxes and penalties last year after the charges were leveled.

Piontkovskii says news like this leaves him cautiously optimistic that Yukos will eventually recover its market status.