Putin insists renationalisation of oil giant Yukos was legal

Russia's President Vladimir Putin insisted yesterday that the controversial acquisition of the key assets of the stricken oil giant Yukos by Rosneft, its state-owned rival, was legal.

Russia's President Vladimir Putin insisted yesterday that the controversial acquisition of the key assets of the stricken oil giant Yukos by Rosneft, its state-owned rival, was legal.

Earlier this week Rosneft swept up BaikalFinansGroup, the shadowy buyer of Yukos' main production unit, in effect nationalising 11 per cent of Russia's oil production.

Mr Putin said: "Rosneft, which is de facto 100 per cent state owned, bought Yuganskneftegaz. I think everything was done by market methods. Today, the state is using absolutely legal and market mechanisms to serve its interests."

Yukos is adamant that the government auction last weekend that saw its prime production operations go under the hammer for a knock-down $9bn (£4.9bn), and Rosneft's subsequent acquisition of the buyer, were illegal. It says any buyer or financier of stock in Yuganskneftegaz is breaching an order from a court in Houston, Texas, where Yukos is seeking Chapter 11 bankruptcy protection.

The case is breaking new legal ground, with Yukos back in court in Houston on 5 January. Analysts warn that the Rosneft purchase could take Yukos' key assets out of reach, even through the international legal system, as the Russian government has immunity from prosecution.

Last weekend's auction was the culmination of a Kremlin campaign to destroy Yukos' politically ambitious former owner, Mikhail Khodorkovsky, who stands accused of fraud and tax evasion and has been in jail for 14 months. In a thinly veiled attack on Mr Khodorkovsky yesterday, Mr Putin said that many businessmen had broken the law to buy state assets on the cheap after the collapse of the Soviet Union.

The Russian government is expected to fold Rosneft into the state-controlled gas giant Gazprom, forming a new company. Gazprom said yesterday that the planned merger, designed to open up its shares to foreign investors, would not be affected by Rosneft's acquisition of the Yukos assets.

The new company, Gazpromneft, had been expected to buy Yuganskneftegaz directly at Sunday's auction, arranged by the Russian government to pay off the $28bn taxes it says Yukos owes. But Gazpromneft was blocked from bidding by a US court injunction.