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Russia: Putin Appears To Soften Tone On Yukos Probe

Moscow, 6 November 2003 (RFE/RL) -- Russian President Vladimir Putin sought to soften his tone on the Yukos scandal for the first time yesterday in remarks made during his state visit to Italy. Putin, speaking in Rome, where he is attending an EU-Russia summit, criticized a recent threat by the Russian Natural Resources Ministry to revoke the licenses of two subsidiaries of the Yukos oil giant. The company's founder and then-CEO Mikhail KhodorkovskII was arrested late last month on fraud and tax evasion charges in a case critics accuse of being politically motivated.

Putin cautioned that the case against Yukos should not become overzealous, and that the state should not be in the business of revoking licenses: "The state can't and shouldn't have any goal of the sort. The state can have only one goal -- restoring order -- and should force all legal entities and individuals to work according to existing laws."

Asked whether he could justify other actions against Yukos -- including the freezing of a major stake of its shares -- the Russian president said, "the prosecutor's office and the courts are not places where rewards, medals, or prizes are granted. These are places where you are already considered to have won a prize and now is the time to check whether you got it legitimately." He added that rule of law must apply in the Yukos case -- but that Yukos was free to continue operations despite the current crackdown against Khodorkovskii and other top officials.

"The state has a sole objective -- that of restoring order. It needs to ensure that individuals, in a judicial and physical sense, operate within the boundaries of existing legislation," Putin said. "As far as companies are concerned, the state, in my opinion, should never destroy their activity because the economic results of this would be completely negative. And this, in my opinion, is not determined by any judicial motivation. I expect the government to refrain from such steps."

It is the first time that Putin has softened his tone on the Yukos controversy. Until now, he has avoided any criticism of the sometimes heavy-handed tactics of the state prosecutors, invoking the importance of due process and professing himself loath to interfere in the case.

In the days following Khodorkovskii's arrest, Putin shot down critics in a style more characteristic of his presidency, saying people should "drop the hysteria."

Putin's apparent change of tone yesterday followed the publication of comments from Natural Resources Minister Vitaly Artyukhov that appeared in "Rossiskaya Gazeta" on 5 November. Artyukhov said that it is "practically inevitable" that Yukos will have production licenses for a number of oil fields revoked.

The ministry warning came at the request of the Prosecutor-General's Office, which is investigating charges against several Yukos managers.

Production licenses are said to be notoriously difficult to fulfill, and come with a long list of rules -- some of which seem purposefully vague, like a tenet against violating "significant conditions." Observers say it is almost always possible to find a company is in violation of its licensing agreement. Yukos's new management team appeared surprised by Artyukhov's statement. The English-language "Moscow Times" newspaper cited Yukos Vice President Bruce Misamore as saying the development was "extremely strange."

Just a day before Artyukhov's statement, the head of Yukos's production unit, Yury Beilin, was asked if he feared the Natural Resources Ministry would seek to review the company's licenses. His answer was cautiously optimistic: "About the inspections -- we've been checked a number of times and I think they can only strengthen our company. There is nevertheless one aspect -- that Russian legislation doesn't clearly define what [a violation] of 'significant conditions' is, and that there can be different interpretations of that. But we will hope that they will be the same for all companies."

The first sign that the Kremlin might be having a change of heart came during the weekend, when Putin's new chief of staff criticized the seizure of the Yukos shares and said Russia's law enforcement bodies, in their "administrative rush" had put the country at risk of serious economic consequences.

Russian and foreign investors have expressed concern that the government's case against Khodorkovskii could escalate into a widescale assault on private businesses. Some warn such a move would spark capital flight and bring an immediate halt to all serious investment.