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Russian PM Critical of Frozen Shares

October 31, 2003

MOSCOW (AP) _ Russia’s prime minister waded into the political turmoil following prosecutors’ actions against the Yukos oil company, saying Friday he was ``very troubled″ by the freezing of its stocks.

``The arrest of shares of a private company that is traded on the market is a new phenomenon, the consequences of which are hard to define, since it’s a new form of influence,″ Prime Minister Mikhail Kasyanov said in the southern city of Nalchik, in remarks shown on Russian television.

The statement appeared to be a sign of defiance toward President Vladimir Putin, who flatly warned his Cabinet on Monday against interfering in prosecutors’ work against Yukos.

``There will be no meetings and no bargaining in regard to the activities of the law enforcement structures,″ Putin had said Monday, adding an appeal to the Cabinet not to meddle in the Yukos case.

Russian analysts predicted a long period of uncertainty following the sequestration of the stocks and the exit of the Kremlin operative most closely identified with the pro-business policies of former President Boris Yeltsin.

On Thursday night, the Kremlin announced its chief of staff, Alexander Voloshin, was departing, capping days of rumors that he had resigned over Saturday’s arrest and jailing of Yukos head Mikhail Khodorkovsky, Russia’s richest tycoon.

Hours earlier, prosecutors froze a huge chunk of Yukos shares, plunging the stock market into its second nosedive this week. The benchmark RTS Russian stock index closed down 8 percent Thursday after the announcement of the freeze, and Yukos shares lost 14 percent.

The sharp market reaction appeared to reflect investor fears that a 4-month-old investigation of Yukos could foretell a broad revision of the results of the privatization program.

The benchmark Russian trading system index opened up Friday, rising 3.3 percent in the first 1 1/2 hours of trading.

Voloshin was the last major figure in the Kremlin from the Yeltsin era, when so-called ``oligarchs″ such as Khodorkovsky amassed huge fortunes after former Soviet state industries were privatized at giveaway prices.

``Voloshin, in a sense, was the face of the (Yeltsin) epoch,″ said sociologist Leonid Sedov.

Putin named Dmitry Medvedev, the first deputy chief of staff and the chairman of the Russian natural gas giant Gazprom, to succeed Voloshin.

Medvedev worked in the early 1990s as an aide to the late St. Petersburg Mayor Anatoly Sobchak, as did Putin after he left the KGB. He is one of the many Kremlin figures from Putin’s St. Petersburg circle, which has been jockeying for influence with other groupings in the Kremlin.

Voloshin, who was named Yeltsin’s chief of staff in March 1999, was regarded as a central figure in the so-called ``Family,″ the group of businessmen and politicians who wielded enormous power under Yeltsin. Kasyanov, too, is associated with this circle.

Voloshin’s departure appeared to signal a strengthening of the security-service faction in the Kremlin, which appears eager to stem the influence of magnates such as Khodorkovsky.

``On the one hand, there is the emergence of a new generation in political life, but on the other, it’s the filling of posts by the most loyal people who can realize the president’s projects,″ Sedov said. ``Voloshin was, in a sense, a brake on this.″

The events of recent weeks ``include elements that must be interpreted as a reconsideration of the (country’s) course,″ said Anatoly Chubais, the architect of the post-Soviet privatization program and current head of Russia’s electricity monopoly, Unified Energy Systems.

The prosecutor’s office said the shares were frozen as a ``guarantee,″ or collateral, to help cover the amount of damages Khodorkovsky is accused of causing the state. It said the shares belonged to Yukos Universal Ltd. and Hully Enterprises, which are held by Trust investment bank, accounting for about 44 percent of Yukos’ shares.

The prosecutors said Khodorkovsky is the ``beneficial owner″ of the shares, which were worth about $12 billion by the end of trading Thursday.

The freeze was a new escalation in the Yukos investigation, which took a dramatic turn with Khodorkovsky’s arrest by special agents at a Siberian airport.

The arrest was widely seen as an action staged by some of Putin’s top lieutenants in retaliation for Khodorkovsky’s political activities, which included funding opposition parties.

Putin told top businessmen and investors Thursday that Russia had taken many steps to help the business climate, such as judicial reforms and improving demands for corporate transparency.

Erik Wigertz, the co-head of research at United Financial Group, a Moscow-based investment bank, said the meeting had not immediately erased worries.

``It’ll take at least a month for Putin’s reassurances to plant themselves in investors’ heads,″ he told Dow Jones Newswires.

Aton Capital brokerage was even less optimistic.

``We believe the notion of political stability, one of the cornerstones of the Russian investment case over the past few years, has been dealt a substantial, if not lasting, blow,″ it said.

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