BUSINESS	FEBRUARY 2, 1998 VOL. 151 NO. 5
	Midwives To A Merger The men behind the creation of a new oil giant have more on their mind than natural resources By PAUL QUINN-JUDGE /MOSCOW ig business in Russia, to paraphrase Clausewitz, is the continuation of politics by other means. This was proved again last week when a new oil giant was born in Moscow. If approved, Yuksi, the product of the merger of two major Russian oil companies, Yukos and Sibneft, will join Royal Dutch Shell and Exxon as one of the world's top three oil companies. This means Yuksi could emerge as a major player in the race to develop the Caspian Sea's oil reserves, which are second only to those of Saudi Arabia. Nevertheless, the talk in Moscow after the merger centered not on the new company's financial might, but on the deal's political implications. This is because the men who engineered the new oil giant have more than natural resources on their mind. They are also thinking about the next President of Russia. Yuksi's chairman will be Mikhail Khodorkovsky, a 34-year-old billionaire who made a smooth transition from the Komsomol--the old Soviet Communist Party youth organization--to banking when the party's power collapsed. His company, Yukos, will hold 60% of the new merged behemoth. The other key player in Yuksi is presumed to be Boris Berezovsky, businessman, politician and Kremlin courtier. Though he denies he owns Sibneft--which holds the remaining 40% of Yuksi--few take the denial seriously. Khodorkovsky will handle the business side of things, observers say, while the 52-year-old Berezovsky, believed to be a billionaire several times over and known to have grown bored with business, will handle the politics. Both men will have plenty to do. In the short run the merger, if successful, will make Yuksi a favorite to win Rosneft, the last major oil company controlled by the state. The company is due to be auctioned off sometime in the coming months, and could, by current estimates, bring the government between $1.5 and $2 billion. If Yuksi wins it, the two men will control one of the most powerful sectors of the Russian economy--which translates into political power. As a Berezovsky-controlled newspaper declared last week with a touch of mischievous hyperbole: "The future President will be chosen at the Rosneft auction." This sudden strengthening of Berezovsky's position has galvanized his rivals, notably Vladimir Potanin, head of the giant Uneximbank financial group. Rumors were rife last week that the Uneximbank-owned oil group Sidanko would merge with another petroleum conglomerate, LUKoil, in an attempt to match Yuksi. An outright merger was considered unlikely, as Sidanko is losing money, but some sort of strategic alliance is possible. Strong friends are important in Russian business where rivalries are resolved not by hostile takeovers but by carefully-designed campaigns to defame, and if possible destroy, a competitor. On the political front, Russia's top financiers are interested in electing a President sympathetic to their interests--and beholden to them for generous campaign contributions--in the year 2000. The way that Russia's tycoons are currently seeking out new allies recalls the coalition of seven major financiers who, on the eve of the 1996 elections, banded together to make sure that Boris Yeltsin would defeat the Communist Gennadi Zyuganov. The coalition has since scattered--former allies Potanin and Berezovsky are now bitter enemies, for example--but the desire to influence the elections remains. A number of business-friendly candidates for the presidency are being mentioned, with Prime Minister Viktor Chernomyrdin the current favorite. Chernomyrdin was on hand for the announcement of Yuksi, and gave it a warm welcome. But in private some of the most influential tycoons admit their ideal candidate is someone else: the incumbent, Boris Yeltsin. Yeltsin has said that he will not run again, but he can change his mind. He also announced in 1993 during his first term that he would not stand as a candidate again. His aides are confident they can finesse constitutional prohibitions against a third term but the big problem is his health--it is unlikely that Yeltsin can ever be more than a part-time President again. But the talk of a Yeltsin third term is revealing. The tycoons who are entering the last phase of their carve-up of the country's resources want a known entity in the presidency. A President, in other words, who is not overly dynamic, enjoys the trappings of power but prefers to delegate responsibility--and who is not weighed down by new ideas that could upset the status quo. Someone, in short, who will not interfere with business.
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