Putin defends move to grab Yukos asset

RUSSIAN President Vladimir Putin today declared the effective State seizure of oil giant Yukos's main production business 'completely legal'.

In a Press conference bound to outrage the international business community including Yukos's main shareholder Menatep, Putin declared: 'The State, using completely legal market mechanisms, is pursuing its interests. I consider it absolutely normal.'

He was speaking as State-owned oil company Rosneft in effect bought Yukos's core production business, Yuganskneftegas (Yugansk) after a sale forced by the government. The winner of Sunday's auction was a mysterious investor called Baikal, which Rosneft is now buying.

Russian news reports were today saying State-owned gas giant Gazprom was preparing for talks to merge with Rosneft in a move that would essentially complete the renationalisation of most of the country's energy assets.

Private shareholders in Yukos, who claim they have been illegally stripped of their main asset, were furious about Putin's comments, the latest twist in a saga seen as having huge implications for private investment in Russia.

A Menatep spokesman said: 'This is absolutely outrageous. Menatep reiterates that we will pursue any purchasers of Yukos's Yugansk assets through the courts.'

In a last-ditch bid to overturn the $9.34bn (£4.9bn) sale of the unit, Yukos sought bankruptcy protection in US courts. But the roundabout mechanism by which Baikal-Rosneft-Gazprom has bought it may defeat this ploy.

With Yugansk, Gazprom would have daily oil production capacity of 1.6m barrels, putting it on a par with the world's majors.

Justifying his actions, Putin referred to the way Russian entrepreneurs bought State assets, such as its energy resources, on the cheap. Such 'oligarchs' are now widely despised in cashstrapped Russia.

He told a Press conference in Moscow: 'You all know very well how our privatisation was carried out at the beginning of the 1990s. How people were using different tricks, including breaking laws.'

Yukos had to sell Yugansk to help meet a $27bn tax bill. Putin's targeting of the firm has been seen as revenge for former chief executive Mikhail Khodorkovsky's funding of opposition parties. He has been in jail for 14 months on fraud and tax evasion charges.