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The New York Times: Russian Oil Magnate Forced to Sell to Putin Loyalist, He Says

July 31, 2007

MOSCOW, July 30 — The owner of Russneft, one of Russia’s largest private oil companies, confirmed Monday that he would sell the business to an investor loyal to the Kremlin, but he added in an open letter that the sale was not voluntary.

Mikhail S. Gutseriev, who was once in the tight coterie of Russian billionaires known as oligarchs but has since fallen from favor, accused the government of President Vladimir V. Putin of forcing him out of the company using trumped-up tax claims.

The critical letter was the first significant public challenge to Mr. Putin from an influential businessman since the imprisonment four years ago of Mikhail B. Khodorkovsky, the former chairman of Yukos Oil, who is serving an eight-year sentence in Siberia. The development left analysts wondering what the future holds now for Mr. Gutseriev.

In a letter that was published on his company Web site on Monday but had been removed by Monday evening, Mr. Gutseriev maintained that the government was using regulatory pressure on both foreign and domestic producers as a pretext to expropriate oil and natural gas property privatized in the 1990s, as part of an effort to effectively nationalize the energy industry.

“They made me an offer to leave the oil business, to leave ‘on good terms,’ ” Mr. Gutseriev wrote in the letter, which was also published in Russia’s largest business newspaper, Vedomosti. “I refused.”

“Then, to make me more amenable, they tightened the screws on the company with unprecedented persecution,” he wrote.

Oleg V. Deripaska, one of Russia’s wealthiest businessmen and an ally of Mr. Putin, applied on Friday for regulatory approval to acquire the oil company. In a statement, his holding company, Basic Element, said Russneft would be incorporated into a subsidiary called En+, which also owns Rusal, Russia’s largest aluminum producer.

Mr. Gutseriev said he decided to sell rather than risk his company’s dismantlement and further harassment of his employees. He has denied any wrongdoing in forming Russneft in 2002.

“I am giving control of the holding to an owner, with whose appearance, I am certain, all the problems of Russneft will in time be solved,” Mr. Gutseriev wrote. In an echo of the Yukos case, which began in 2003, the police charged Mr. Gutseriev with illegal business activity in May.

Last autumn, Russian regulators pressured Royal Dutch Shell about environmental infractions in increasingly shrill terms, at one point threatening to sue for each tree cut down on a pipeline project. Shell and two Japanese partners, in response, sold 50 percent plus one share in the Sakhalin II project to the state energy giant Gazprom.

Then, in June, BP’s local joint venture in Russia, TNK-BP, sold a controlling stake in a large natural gas project to Gazprom for a below-market price after being pressed by regulators for developing the field too slowly, a violation of a license technicality.

In both cases, the foreign companies made no public protest or statement pointing out that the nominal claims against their operations in Russia appeared to be pretexts to force a sale, the point that Mr. Gutseriev made Monday.

“As everybody in the world knows, you don’t fight city hall, and in Russia you don’t fight the Kremlin,” Chris Weafer, the chief analyst at Alfa Bank, said in a telephone interview. “When the Kremlin comes calling and says ‘we want to buy your business,’ the only talk is about price and terms.”

A spokesman for Basic Element did not return calls requesting comment on Mr. Gutseriev’s claim that the transaction involving Russneft was not voluntary, something that could prove a stain on Mr. Deripaska’s business reputation as he expands his mining-to-automotive empire outside Russia’s borders.

The board of Russneft issued a statement Monday saying Mr. Gutseriev had resigned as director and would halt other business activity in Russia as well. and its sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

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