Business Watch: August 19, 2003

Embattled oil major Yukos shrugged off its domestic legal travails (see "In Focus") to sign a memorandum of understanding with Austria's OMV on 13 August, opening the door to a new foreign market, ABN reported the same day. According to a 13 August Yukos press release, the two companies will work together to build a 60 kilometer pipeline to connect Bratislava, Slovakia, and OMV's refinery in Schwechat, Austria, near Vienna. Slated for completion by the end of 2005, the $28 million pipeline will eventually have a capacity of 3.6 million tons of crude per year (72,000 barrels per day), although shipments will start up at a modest 2 million tons per year (42,000 barrels per day). The pipeline connects back to Russia through Slovakia's Transpetrol -- in which Yukos owns a 49 percent share -- and the Druzhba pipeline, "Vedomosti" reported on 12 August. Analysts greeted the news. Troika Dialog's Valerii Nesterov told "The Moscow Times" on 13 August that the project "is very positive news." Prospect Investment analyst Vladislav Tropko told "Gazeta.ru" the same day, "Yukos is finally penetrating the Austrian market, and with its own pipeline, for all practical purposes. Using a pipeline for these shipments to Central Europe will reduce the cast of the oil, meaning big profits and the conquest of new markets for Yukos."

Mosenergo director Arkadii Yevstafev presented the Moscow utility's financial results for the first half of 2003 at a 14 August press conference, taking the opportunity to parry recent barbs from Mayor Yurii Luzhkov. According to a 15 August Mosenergo press release, the company earned a net profit of 1.3 billion rubles ($43 million) in the first half of 2003, a marked improvement over its 778 million ruble loss for the same period last year. Revenues rose 51 percent year-on-year to 37.2 billion rubles, and accounts receivable dropped from 7.2 billion rubles at the beginning of the year to 5.1 billion rubles at the halfway mark. Meanwhile, First Deputy Director Dmitrii Vasilev told journalists that the utility's reconstruction and modernization program up through 2010 will require $700 million in investments. Deputy Director Vyacheslav Nazin explained that some of the money will come from higher tariffs, including a proposed 28 percent hike in 2004, "Kommersant-Daily" reported on 15 August. The plan could run afoul of the Economic Development Ministry's recommendation to cap 2004 tariff increases at 13 percent, however.

Yevstafev criticized the city government for slashing the utility's investment program even as ambitious municipal building projects increase strain on the power grid, "Gazeta.ru" reported on 14 August. Mayor Luzhkov has feuded with Yevstafev, seen as a protege of Luzhkov's opponent Anatolii Chubais, since the latter took the helm at Mosenergo in 2002. Luzhkov has gone so far as to propose the construction of new power plants to circumvent Mosenergo. Antanta Capital analyst Denis Matafonov told RBC on 15 August that the mayor's bark may be worse than his bite: "Luzhkov's plan to create new, efficient energy plants is probably the fruit of an active imagination. The cost of Mosenergo's generating assets is several billion dollars. The city of Moscow does not, and will not, have that kind of money."

The benchmark Russian Trading System (RTS) stock exchange gained 37.76 points for the week of 11-15 August to close at 510.84, clawing its way above the 500 mark for the first time since the Prosecutor-General's Office squared off against oil major Yukos in early July (see "In Focus"). The Antimonopoly Ministry's 14 August decision to approve the merger of Yukos and Sibneft buoyed hopes that the standoff may be on the wane and helped to cement the market's gains for the week. According to the RTS newsroom (http://www.rts.ru/), oil company Surgutneftegaz was the week's biggest winner, rising 13.68 percent to close at $0.432. Yukos closed at $14.01, up 10.1 percent for the week. "Kommersant-Daily" noted in its 16 August summary of the week's trading activity, "Yukos employees are still behind bars and the company is literally drowning in suits from the Prosecutor-General's Office. But this no longer makes much of an impression on investors, who continue to be bullish on the Russian stock market."

A 15 August Supreme Arbitration Court decision failed to clarify the situation around Ilim Pulp's pulp and paper mills even as the timber industry holding questioned the legality of police searches at its St. Petersburg headquarters. The court refused to overturn earlier decisions by lower courts that approved the sale of shares in the Kotlas Pulp and Paper Mill and the Bratsk Timber Mill, ABN reported on 15 August. Continental Management, acting on behalf of St. Petersburg banker Vladimir Kogan and aluminum tycoon Oleg Deripaska, claims to have acquired controlling stakes in the mills earlier this year; Ilim Pulp, which continues to maintain physical control of the mills, has vigorously disputed the legality of the sales, charging that Continental Management used a spurious court decision as a pretext for an illegal ownership transfer. Aleksandr Ampilov, Continental Management's assistant deputy PR director, applauded the ruling, telling RIA Novosti that the court "settled the year-and-a-half-long conflict over the ownership of these mills. The court has decisively affirmed Continental Mangement's...right to manage the Kotlas and Bratsk mills." Ilim Pulp press center director Elena Konnova scoffed at Continental Management's claims, telling Lenta.ru on 15 August that the court only reviewed certain technical aspects of the sale, not the larger issue of ownership. Earlier, in a statement on Ilim Pulp's website (http://www.ilimpulp.ru/), director Sergei Kostylev called a 5-6 August search of the company's St. Petersburg headquarters "inspired by our opponents." In a clear reference to the events around Yukos (see "In Focus"), Kostylev wrote, "Unfortunately, interference by biased officials and state law enforcement authorities into the economic life of Russian companies is becoming a routine practice lately."

Metals giant Norilsk Nickel and state-owned oil company Rosneft announced in a joint 11 August press release that the two companies have signed a memorandum of cooperation to develop the port of Arkhangelsk. The project will focus on deepening the White Sea port's channel to accommodate larger vessels, "Kommersant-Daily" reported on 12 August. Additionally, Rosneft will invest $15 million into improving shore infrastructure at its terminal at the port. NorNickel holds a controlling stake in the port itself. Dmitrii Panteleev, deputy director of Rosneft's press service, told "Vedomosti" on 12 August that the two companies have not yet determined how much investment will be required to deepen the channel from the White Sea to the port. According to Rosneft, the improvements will allow the company to boost crude exports via Arkhangelsk from current levels of 30,000 barrels per day to 140,000 by 2007, "The Moscow Times" reported on 12 August.

The National Reserve Bank (NRB) intends to call an extraordinary meeting of Aeroflot shareholders to elect a new board of directors for the air carrier, Interfax reported on 13 August. Although NRB owns a 30 percent stake in the airline, it is not currently represented on the company's 11-member board. NRB bought into Aeroflot shortly before the annual shareholders' meeting in April; lacking time to nominate its own candidates, it supported the state's nominees, who now hold eight of eleven seats. Speaking to journalists on 12 August, NRB President Aleksandr Lebedev lambasted the current board for failing to assemble a quorum at three of its last five scheduled meetings. "The Moscow Times" quoted Lebedev as commenting, "This is an outrage." According to "Vremya novostei," NRB hopes to gain three or four seats on the board. A source close to First Deputy Director Aleksandr Zurabov told "Vedomosti" on 14 August, however, that the state might block an attempt to change the makeup of the board.

Mobile TeleSystems (MTS) announced in a 11 August press release that the company's board of directors has recommended Vasilii Sidorov for the top post at the leading cellular operator. Currently the first vice president of Sistema Telecom, the 32-year-old Sidorov studied at the Moscow Institute of International Relations and the Wharton School of Business in the United States. Before joining Sistema Telecom in 2000, he was the deputy director for finance of Svyazinvest. Sidorov does not come to MTS as an outsider -- Sistema Telecom is part of the same AFK Sistema holding company that holds a controlling stake in MTS. Troika Dialog analyst Evgenii Golosnoi told "Vedomosti" on 12 August, "The market reacted positively to this news. The key people stay where they are, and the team doesn't change." "Ekspert" No. 29 noted, however, that the Western-educated Sidorov "faces the difficult task of fine-tuning the management process at a company that is home to the MTS old guard, who are used to an authoritarian style." Current MTS President Mikhail Smirnov is set to become the president of the Moscow City Telephone Network, also a part of AFK Sistema.

Major shareholders in cellular operator MegaFon released a statement on 11 August detailing their objections to competitor Alfa Echo's recent acquisition of a 25 percent stake in MegaFon, "Kommersant-Daily" reported the next day. Finnish-Swedish TeliaSonera (35.6 percent), St. Petersburg-based holding company Telecominvest (31.3 percent), IPOC International Growth Fund Limited (6.5 percent), and WestLink Ltd. (1.5 percent) explained that they learned of the deal "mainly from publications in the press" and that "the completion of this deal will lead to the violation of acting agreements between MegaFon shareholders." "Vedomosti" reported on 12 August that a copy of a 2001 agreement between MegaFon shareholders obtained by the newspaper prohibits the sale or transfer of MegaFon shares to a competitor. Alfa-Echo is part of Alfa Group, which holds a blocking stake in MegaFon competitor VimpelCom. Numerous levels of ownership muddy the waters, however. According to "Vedomosti," Alfa Echo bought LV Finance, the sole owner of Bahamas-registered offshore Transcontinental Mobile Investments, which controls 100 percent of CT Mobile, which in turn holds a 25.1 percent stake in MegaFon. A source close to MegaFon told "Izvestiya" on 13 August that, since Russian law does not cover such eventualities, the dispute may be pursued in a foreign jurisdiction. Meanwhile, the disgruntled shareholders had no further comments to add to their statement, and Alfa Echo spokespeople informed journalists that the company's management is currently on vacation, "Gazeta.ru" reported on 11 August.

The State Statistics Committee announced on 13 August that foreign investment in Russia for the first half of 2003 totaled $12.66 billion, a 51.3 percent year-on-year rise, Interfax reported the same day. Foreign direct investment was up 35.3 percent to $2.53 billion, and long-term borrowing (more than 180 days) rose nearly 100 percent to $6.56 billion. "Vedomosti" noted on 14 August, however, that Central Bank statistics made public over a month ago paint a somewhat less rosy picture. According to the Central Bank, total foreign investment for the first half of 2003 rose 10.3 percent year-on-year to $6.8 billion, foreign direct investment rose 39 percent to $2.3 billion, and borrowing rose 14.3 percent to $4.2 billion. Experts interviewed by the newspaper said that while the overall trend is positive, more accurate methods need to be used to calculate such an important statistical indicator.

Five years ago, on 17 August 1998, Russia's cabinet and Central Bank issued a joint declaration that, for all its bureaucratic reserve, meant one thing: the government's stopgap measures had failed and the country was about to plunge headlong into financial crisis. Today, five years later, we look back at some of the reactions in Russia and abroad to that fateful event.

Russian financial markets had been in a bad way throughout the summer of 1998, yet the ruble had held steady and no larger crisis broke. Britain's "Financial Times" describes the atmosphere on 14 August, three days before the thunder rolled:

"Yet there is still a sense of unreality about the crisis. Most Russians, who do not have mortgages, car loans or credit cards, appear oblivious to the wild gyrations of financial markets and interest rates. Even though the financial system appears on the brink of collapse, top Russian officials...remain on holiday.

"Even [Prime Minister] Kiriyenko, who has made heroic efforts to grapple with his responsibilities since entering office in March, was refusing to admit the gravity of the situation yesterday. 'What is happening on the markets belongs in the realm of psychology,' he said. 'There are at present no financial grounds for a deterioration in the situation.'"

The three key elements of the 17 August government announcement were: 1) a widening of the "currency corridor" to allow the ruble to trade at anywhere from 6 to 9.5 to the dollar; 2) a halt to all trading on state short-term bonds (GKOs) with new repayment terms to be revealed shortly; 3) a 90-day moratorium on debt repayments to foreign creditors. Most observers were quick to term the moves a devaluation of the national currency and a default on short-term debt.

"Izvestiya" commented on 18 August on the practical fallout from these measures:

"The country's fiscal authorities have made it clear that they will let the ruble float freely. Obviously, its rate of exchange will fall, as it was noticeably overvalued. But only time will tell whether the drop will be precipitous --accompanied by unpredictable price hikes and an outbreak of the inflation we've forgotten in recent years -- or reasonable and gradual. The results of Monday's trading on the currency exchange holds out hope for the latter. But Moscow's exchange points witnessed overwhelming demand for hard currency and crazy rates to buy dollars. This, then, is the government's main concern now: to stop the incipient panic."

"Obshchaya gazeta" offered the following comment the same day:

"The measures proposed by the government are so serious that it will only be possible to predict all of their consequences once some time has passed. At the very least, we need to wait until the country recovers from shock and adapts to the new economic reality."

Writing in "Novye izvestiya" on 18 August, commentator Otto Latsis wondered why the Russian financial system had proved so vulnerable:

"[The government and Central Bank] continue to talk only about the Asian crisis and the drop in world prices for oil -- that is, external causes beyond the control of the state. But why has the very same Asian crisis that spurred a flight of dollars from Russia failed to produce a similar effect in Poland, the Czech Republic, Hungary, and the Baltic countries, which began their transition 'from the plan to the market' at the same time that we did? Because they did not only begin this transition. For the most part, they finished it. They already have a market economy, while we still have a transitional one."

"Nezavisimaya gazeta" saw a parallel with the events of August 1991:

"August 1998 is surprisingly similar to August 1991. Seven years ago, the putsch took place in Moscow; yesterday brought a revolution in economic policy. At an emergency press conference on the morning of 17 August, Prime Minister Sergei Kiriyenko was terribly reminiscent of Gennadii Yanaev during the GKChP's [Committee on the State of Emergency] memorable press conference -- the same quavering voice, trembling hands, and empty verbiage. The first signs of a putsch are a fundamental about-face in domestic politics, the introduction of prohibitive measures, and barefaced lies. All of this was in evidence yesterday."

A few days later, on 24 August, "Izvestiya" described a crisis in full swing:

"State Duma deputies directed withering criticism at the Kremlin, the White House, and the Central Bank at an extraordinary session on the financial and economic situation in the country. On 23 August, the president was forced to replace [Prime Minister] Sergei Kiriyenko with Viktor Chernomyrdin. Events followed a worst-case scenario: The ruble was devalued by 50 percent within the currency corridor and by 150 percent on the street, where exchange rates reached 15 rubles to the dollar; a shortage of hard-currency cash in banks only heightened the panic. It has been a long time since we saw such throngs at exchange points, ATMs, credit agencies. There is only one demand: 'Money!'"

Russia's financial crisis captured the West's attention as well. Here is how "The New York Times" raised the curtain for its readers on 18 August:

"Devaluation and default were steps the Russian government wanted to avoid for fear they would unleash political unrest and anger foreign leaders. But yesterday the Kremlin took those steps because the alternative -- the collapse of the banks and eventually the economy -- seemed worse."

Britain's "Financial Times" betrayed a hint of unease in this 18 August editorial comment:

"Russia has suffered a defeat, one that could turn into a disaster, not just for Russia, but for the world. The government could fall, President Yeltsin's authority could be destroyed and the country could again suffer an inflationary collapse. The task ahead is to minimize these risks. Given Russia's political fragility, this will need foreign patience and support. It may not be easy to go forward. But it can, and must, be done."

Today, five years later, Russia's macroeconomic indicators point anywhere but crisis. Even so, Gazeta.ru noted on 17 August 2003 that, according to a recent poll by the All-Russia Center for the Study of Public Opinion, 44 percent of Russians feel that a repeat of the 1998 crisis is possible (36 percent feel such a repetition is not possible, and 20 percent had no answer to the question). The newspaper commented:

"It seems that even those citizens who know nothing of macroeconomics have a gut feeling that radical changes in the Russian economy have not really taken place yet. The ground beneath it remains unstable. It depends almost entirely on world prices for oil, just as it did five years ago. Today those prices are high, and there's no default."

Writing in "Izvestiya" on 18 August, political observer Andrei Kolesnikov cited a different poll and came to a different conclusion:

"Immediately before the anniversary of the default, the market rose sharply, reacting joyfully to the Antimonopoly Ministry's approval of the Yukos-Sibneft merger. Very adult. Only five years ago, on the very same spot, there wasn't even a market to speak of. What appeared a short while later was an ungainly parody of one. But it has become clear that 17 August 1998 is so far away from us that not even phantom pains remain. It's not just history, but an event for the history books. The old wounds have healed, and our memory of the event has grown dull -- 30 percent of respondents to one poll claim that the default did not harm them at all."

By Andrei Deriabin

Novosoft Group, a leading Russian custom software development house, is going through a crisis and renewing its managerial staff. Novosoft achieved impressive successes in 1996-98 thanks to the international dotcom boom and the unique concentration of high-powered computer specialists at the Novosibirsk Scientific Center where the company is located. All of this put Novosoft in the top five of Russian software development companies by 2001, according to Gartner's Research. Novosoft Group did about 90 percent of its business for overseas customers. About 80 percent of all orders came from the United States, while other foreign customers were located in Western Europe and Japan, according to OffshoreDev.com.

Recent months have witnessed the near collapse of the Siberian software giant, raising questions about the solidity of its past success and sparking anxiety about the future of the "Silicon Taiga." Participants and observers agree, however, that the breakup of Novosoft Group will not have as negative an impact on the Siberian software industry as it may seem at first glance.

Founded in 1992 by U.S. citizen Philip Brenan, Novosoft Inc. was incorporated in Austin, Texas. Brenan's Russian partner since 1992 was Vladimir Vashchenko, who established the Novosibirsk branch of Novosoft Inc. -- a software development center with a staff of more than 350 experienced programmers in Akademgorodok. Formally, Vashchenko was the founder of another company -- OOO (limited liability company) Novosoft, registered in Russia.

According to Vashchenko, disagreements between him and Brenan started when the world IT crisis began. Though Novosoft's business instantly fell off, the company was still obligated to support a vast array of social programs and partnerships with the Siberian Branch of the Russian Academy of Sciences and Novosibirsk State University. Though there are no publicly available records of Novosoft profits, "Vedomosti" reported on 16 July that the company's 2002 revenues were 11.8 million rubles ($390,000). According to the company's former managers, Novosoft Group's 2002 revenues represented a 30 percent year-on-year drop. The company's anticrisis measures required additional spending as well. These included reorientation toward the Russian market and the development of proprietary software. Even so, says Vashchenko, Brenan considered Novosoft's efforts futile and inadequate. In April he proposed to Novosoft managers in Novosibirsk that they leave the company and start working directly with him using the old offshore arrangements. Even worse, Vashchenko adds, he blocked the company's access to its U.S. bank accounts, which created financial difficulties for the company's Novosibirsk branch and started a chain reaction of management flight, sometimes together with entire project teams and their clients. Brenan did not respond to an e-mail inquiry asking him to contribute comments to this story.

The conflict escalated in June when Novosoft managers Anton Zaruyev and Ivan Ilnitskii accused Vashchenko of exceeding his authority and claimed their right to manage the company's Novosibirsk branch. Vashchenko comments that the former Novosoft employees, armed with a dubious power of attorney obtained from Brenan, tried to use their connections with Interior Ministry authorities to seize control of his business. He, in turn, alleges that other former employees are guilty of intellectual property theft and that some Interior Ministry officers close to Ilnitskii had been extorting money from Novosoft under the pretext of offering it their security services.

Managers who left Novosoft in 2002-2003 maintained in interviews that the disagreements between Novosoft founders merely reflect underlying problems with company management that emerged when crisis gripped the IT industry. With profits plummeting, Novosoft, like many other software companies, focused on optimizing its business processes, marketing, and quality assurance to maintain the company's competitiveness. According to Vitalii Gumirov, former chief technical officer (CTO) at Novosoft, the company achieved sufficient results. Even as the overall industry continued to decline, their efforts allowed the company to reduce its impact until 2002.

In the end, however, the effects of those changes were undone by factors beyond the managers' control, said a former Novosoft manager who asked that his name be withheld. These factors included financial mismanagement, flawed employee motivation systems, and an ill-defined company strategy. Others add to this list ambiguous relationships between the company owners, the issues of delegating authority, and inconsistent decision-making practices by senior executives. Serious financial problems were the end result. Beginning in 2001, managers started to leave Novosoft. There are now about a dozen small companies in Novosibirsk established by people who quit Novosoft in the period between 2001 and 2003.

Still, all of the people interviewed for this story agreed that the Novosoft collapse will not have negative consequences for Siberia's IT industry as a whole. Quite the opposite, they maintain -- what took place is a normal process of rearranging key players by their actual levels of competence and potential.

Igor Galichin, CTO of Financial Technologies Center Inc. and former Deputy CTO of Novosoft, says: "It doesn't make sense to project the Novosoft crisis onto the entire IT industry in Siberia. What happened is just a normal thing -- the managers outgrew the company and the relationships within it, and its senior executive branch failed to notice in time and respond with proper organizational changes. One ineffectively managed company split into several independent groups established by experienced, well-qualified managers."

One positive result of the crisis is the release of entrepreneurial energy as various professional teams become players. Former Novosoft CTO Gumirov, now with Aurorisoft, says: "Nothing horrible happened, actually. Novosoft's unresolved internal problems ended in gridlock. Now, we're fully responsible for our businesses. We gained important managerial experience and a clear understanding of business dos and don'ts. We feel very positive about the future."

"The company's turnover has decreased, of course, as a result of all those events," says Vashchenko. "But Novosoft continues to work with all its clients, including the U.S. Energy Department, IBM, Norilsk Nickel, and others.... As for the teams that came out of Novosoft, perhaps not all of them will survive. Small companies don't have the client base and diversification needed for sustainable development. The only ones who will stay on the market are those who understand that you need integration to achieve success in the long run."

Some of the "post-Novosoft" firms continue to develop and implement the software products they started as Novosoft project teams. This is a touchy issue for the time being. According to a former Novosoft top manager, the transfer of intellectual property rights is taking place according to law: "Novosoft Inc. legally owns some of the products developed by the group of companies. The teams that developed those products and later became autonomous enterprises currently sell them according to a legal agreement with Novosoft Inc. representatives in Novosibirsk which includes revenue sharing." Yet Vashchenko questions the legitimacy of those representatives (Zaruyev and Ilnitskii) and wonders whether any revenue sharing really takes place. He says that the legal holder of the "Novosoft" trademark in Russia is OOO Novosoft. He vows to "defend its rights to the products by all possible legal means."

The "product model" -- one of two predominant business models in the Russian offshore software industry -- seems to be increasingly lucrative for Novosibirsk companies. According to a 2002 report, "The Offshore Programming Market" by Market-Visio/Gartner, the majority (62 percent) of Russian companies work strictly in the framework of the custom software development model, 9 percent of companies develop and promote their own products, and 26 percent employ a mixed approach. Though custom software development will dominate during the next two years, the report says, the majority of market players consider the product model more promising and profitable. According to another analytical report, Russian offshore software companies consider the development of a product model (39 percent of surveyed firms) and vertical specialization (9 percent) their top priorities ("The Russian Offshore Software Development Industry Survey" by Outsourcing-Russia.com, 2003).

Vitalii Sukhovskii, regional manager at Sun Microsystems and the former head of Novosoft's Mobile and Wireless Solutions Division, says: "It is unlikely that a pure offshore software company that does everything -- and nothing -- will successfully develop today. A more promising move is the combination of custom software development, or 'product model,' with specialization in some vertical markets while offering a full range of services in that field."

"Small autonomous development teams usually offer some very specialized solution or application," Igor Galichin maintains, precisely describing the situation of some "post-Novosoft" companies, which currently focus on such areas as mobile communications and enterprise software solutions, business applications, IT consultancy, personal data storage software, and system programming. "This is a disadvantage in terms of business survival and growth. Beyond that, there is a market trend toward long-term relationships with big corporate clients, which means gradual mergers of small software companies. They will inevitably consolidate.... As for Novosoft itself, its former managers maintain good informal ties. Time will come and they will work together in some form or another. Everybody realizes that the business requires it. They needed to break up just to get back together some day," Galichin concludes. The trend toward cooperation between the companies that came out of Novosoft Group emerged shortly after its collapse. Vitalii Gumirov says that they are already engaged in joint efforts, for example, in marketing.

Learning from their mistakes, Siberian software companies have adopted more up-to-date management practices. This includes more than the development and maintenance of the "operational core" of business support systems, investment relations, innovative marketing solutions, etc. It also encompasses the resources needed for success in human relations and organizational culture, precisely the factors that Siberia's erstwhile software giant neglected.

Andrei Deriabin is a media analyst and the founder of Developmental Policies (DEPO), a research and consulting organization specializing in media, cultural affairs, and social policies.

Buoyed by a bit of good news and stymied by deadlock on other fronts, the Russian business world decided last week that the standoff between the Prosecutor-General's Office and oil major Yukos was not such a big deal after all.

The good news came on 14 August when the Antimonopoly Ministry announced that it saw nothing objectionable in the merger of Yukos and Sibneft. The decision paves the way for the creation of YukosSibneft, an oil "supermajor" that will give Russia its first truly world-class corporation. The official go-ahead also allayed fears that the Antimonopoly Ministry might come down with a case of the anti-Yukos contagion that has swept through the Prosecutor-General's Office since July.

Little other cause for cheer was in evidence. Duma Deputy Vladimir Yudin sent yet another letter to prosecutors asking them to open yet another inquiry into a Yukos-related matter. A court brushed off Yukos's objections to a July search of the company's archive. And another court added another murder rap to the double homicide charges that Yukos security official Aleksei Pichugin is already facing. At current rates, the number of criminal investigations into the company will soon climb into the double digits.

But observers had eyes only for the silver lining. Alfa Bank analyst Angelika Henkel told "Vedomosti" on 14 August that the Antimonopoly Ministry's approval of the Yukos-Sibneft merger marked "a move by the state toward finding a compromise to end the conflict between the prosecutor-general and the Yukos management." In an editorial the same day, the newspaper's editors wrote, "The government seems to have succeeded in dispelling investors' worst fears." NIKoil analyst Lev Snykov told "The Moscow Times" the same day, "Firstly, everything that is happening around Yukos has more or less a local character. Secondly, it is temporary." "Izvestiya" cited sources at BrokerCreditService on 14 August, telling readers, "Everyone feels that the conflict between the authorities and Yukos is starting to die out."

The above-quoted optimists clearly see the Antimonopoly Ministry's decision as proof that the state does not have any monkey business planned for Yukos's actual business. In this view, the ministerial decision indicates a broader shift, and the rest of the investigations and court cases are so many legal kerfuffles that will now sort themselves out. Thus, the occasional core shareholder may end up behind bars for reasons that are less than entirely clear, but Yukos itself will soldier on as an oil-pumping, money-making entity. While these optimists may well be right about the outcome, pessimists might be forgiven for asking whether such logic is really cause for optimism.