Yukos row is damaging business environment in Russia

Moscow (Platts)--10Nov2004

The long-running Yukos scandal is impacting negatively on Russian oil
production and on the overall business climate in the country, President
Vladimir Putin's special economic advisor Andrei Illarionov said Wednesday,
Interfax reported. October oil output fell slightly below levels of the
prveious month in part because of Yukos' troubles, Illarionov said. "The Yukos
affair is a vivid example of the destruction of one ofthe most efficient
Russian companies," he said. "Yukos was a beacon for the entire industry from
the point of view of production growth rates and efficiency. When a beacon is
knocked over other companies adopt more restrained production and investment
forecasts", he added. 

An increase in pressure from federal authorities on business is creating
unpredictability both in the short and medium term, Illarionov said. Yukos has
been accused of billions of dollars worth of tax evasion and has already paid
back over $3.5-bil of back taxes this year.

A severe cash crunch has forced the company to shave back investment and
production targets. Many observers believe that the attack by taxmen on Yukos
is part of a broader political offensive against the company's founder Mikhail
Khodorkovsky who has been in jail for over a year. Yukos woes have also served
as a cautionary tale for other super rich oil magnates who might otherwise
have challenged Kremlin policies. In the past few months the government has
moved to tighten state control over the oil and gas sectors.

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