Yukos creditor praises Chrétien

The holding company of Russia's beleaguered Yukos Oil Co. has confirmed that Jean Chrétien will handle its conflict with the Kremlin at the highest levels -- and is already lavishing praise on the former prime minister's ability to resolve crises.

Group Menatep, which has a 44-per-cent stake in Yukos and is its main creditor, issued a statement yesterday welcoming Mr. Chrétien's efforts "to help resolve the tax and other legal issues confronting the Yukos Oil Co., Mikhail Khodorkovsky, Group Menatep and its other core shareholders."

It's unclear whether Russian President Vladimir Putin summoned Mr. Chrétien to the Kremlin for a talk on July 5 or Mr. Chrétien offered to help resolve the situation. But this is the first public confirmation that Mr. Chrétien will deal with the main players in a conflict that has put Russia's richest man behind bars, driven oil prices to record highs and sent Russian stock exchanges on a roller coaster ride.

"I think Mr. Chrétien is a world leader of renown, who I am sure Mr. Putin talks to as a friend and equal. I think we would hope they will be able to discuss the issue on equal terms, and that Mr. Putin will feel comfortable talking with him," Menatep general director Tim Osborne said in a telephone interview from Britain last night.

In the statement, Menatep described Mr. Chrétien as "an honourable and dedicated public servant, a statesman of global stature whose years in office were dedicated to resolving international disputes and encouraging Russia's opening to the West. There could be no one better placed to help resolve the so-called Yukos affair, which has undermined confidence in Russia and caused deep concern over the country's future."

Observers in Moscow suggest the oil firm or its major shareholders have retained Mr. Chrétien as a last-ditch attempt to keep the state from dismembering Yukos. "I can't see how the Kremlin would bother appointing a mediator," said Stephen O'Sullivan, co-head of research of Moscow-based brokerage United Financial Group.

Still, he said Mr. Chrétien's arrival is one of the few bright spots in a week of worsening news. "That seems to suggest there's some prospect of mediation, which has been sadly lacking."

Mr. Chrétien has tight deadlines: Yukos has been given one month to pay the remainder of a $3.4-billion (U.S.) tax bill owing from 2000; the company also faces $3.3-billion in taxes from 2001 and unspecified taxes from subsequent years. Court bailiffs have said they will seize and sell Yukos's core production unit, Yuganskneftegaz, if the bill is not paid.

In retaliation, Group Menatep has threatened to sue any company that tries to scoop up Yukos assets for less than their market value. But Yukos's woes don't end there: the company has said it will have to curb production by mid-August if some of its frozen bank accounts are not freed for use. The company has paid its rail tariffs for only the first week of August, and has storage capacity for only about three days worth of production.

Many Western analysts see the full-frontal attack on Yukos as motivated by Mr. Khodorkovsky's political activities, while many Russians see it as the Kremlin taking on one of the shady so-called oligarchs who profited on the misfortune of others during the wild days of privatization in the early 1990s.

Other high-profile names have tried and failed to mediate an end to the conflict, but Group Menatep says it has great faith in Mr. Chrétien: "We have reason to believe that Mr. Chrétien understands the urgency of the current situation," the statement said.


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Peace moves in Yukos tax crisis

Shares in Yukos, Russia's embattled oil company, continued to rally yesterday as bailiffs struck a more conciliatory tone with the company and its shareholders welcomed a former Canadian prime minister as mediator with the Kremlin.


The share price rose 12 per cent as bailiffs, who come under the Ministry of Justice, hinted that Yukos could pay its tax debts to avoid bankruptcy. Andrei Belyakov, the head of the bailiffs' department at the Ministry of Justice, said he had received assurances from the company that it would do all it could to pay the entire $3.4bn tax bill within a month.

Yukos has already paid some 20 per cent of that. If it does not pay the rest by the end of August, the bailiffs could proceed with the forced sale of its assets.

A person close to Yukos said the company was satisfied with its talks with the bailiffs and would do all it could to pay the entire tax bill over the next few months.

There was also hope that core shareholders including Mikhail Khodorkovsky, the former chief executive accused of fraud and tax evasion, could reach agreement with the government about the future of the company with the help of Jean Chrétien, a former prime minister of Canada.

Group Menatep, a holding company trough which Mr Khodorkovsky and his partners hold their controlling stake in Yukos, welcomed Mr Chrétien's initiative. Tim Osborne, managing director of Menatep in London, added: "Yukos executives have said they could be forced to curtail production and oil shipments within the next two weeks if they are not given access to corporate bank accounts and other assets frozen or otherwise blocked by the Russian government."

Mr Chrétien met president Vladimir Putin on July 5, but there was no confirmation that Yukos was a subject of their discussion.

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Yukos 'has one month to pay bill'

Yukos has reportedly been given a month to settle a $3.4bn tax bill, easing fears the firm might soon be broken up.

Interfax news agency reported bailiffs as saying the firm had agreed to pay arrears for 2000 by the end of August, and had already paid 20% of the sum.

It had been feared that the authorities would enforce payment within days by selling off key assets, potentially forcing Yukos to file for bankruptcy.

Yukos shares were boosted by the news, rising 10% in early trading.

Market relief

According to Interfax, chief bailiff Andrei Belyakov's agreement with Yukos to pay the $3.4bn sum within a month followed a meeting with its vice-president Frank Rieger.

"Company representatives assured us that they will continue to discharge the debt and make everything possible to pay all the sum within a month," Mr Belyakov was quoted as saying.

Bailiffs had already collected 20% of the outstanding sum, Mr Belyakov told Interfax.

"Although the law sets no clear timeframe for discharging the debt, we, four our part, would like to expedite the process payments," he added.

However, Yukos would not confirm whether it had agreed a payment deadline.

"We have received no official notification from the Ministry of Justice that its position has changed," a company spokesman said. "Our position is that we are trying to pay the tax bill as quickly as possible."

Yukos had appeared on the edge of collapse on Wednesday when it appeared that a bailiffs order would prevent its subsidiaries producing or selling oil.

However, the order was subsequently found to apply only to the sale of fixed assets such as property.

Breathing space

The news that Yukos has seemingly won some breathing space in which to settle its debt cheered investors, which have been abandoning the stock in growing numbers over recent days.

Yukos shares rose 10% in early trading and were still 5% ahead by early afternoon.

Maxim Shein, an analyst at BrokerCreditService, told Reuters that Yukos might still be able to pay the debt without bailiffs having to sell its principal oil production unit, Yugansknefttegaz.


The unit accounts for 60% of Yukos' daily oil output of 1.7m barrels.

Yukos has said that its sale could force it to file for bankruptcy.

Potential dialogue

"The long awaited dialogue between Yukos and bailiffs has started and may set out a timetable for payments enabling Yukos to use revenue inflows to repay the state and fund current operations," Mr Shein said.

The Russian government is pursuing Yukos with a back tax claim of more than $7bn relating to payments which it claims the oil firm avoided in 2000 and 2001.

It could seek additional payments for 2002 and 2003.

Many observers see the state's pursuit of Yukos as a politically motivated campaign by the Kremlin to destroy the company and its founder, Mikhail Khodorkovksy.

Mr Khodorkovsky and former Yukos associate Platon Lebedev are currently standing trial on charges of fraud and tax evasion.



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Oil Hits Fresh Highs on Supply Fears

U.S. oil prices hit fresh record highs on Friday on fears of a disruption in supplies from world number two exporter Russia and doubts over oil cartel OPEC's ability to make up for any shortfalls.

OPEC is pumping at more than 95 percent of capacity, the highest for a quarter of a century, giving it little room for maneuver in an emergency.

U.S. light crude (CLc1: Quote, Profile, Research) struck $43.34 a barrel, the highest in its 21-year history on the New York Mercantile Exchange. It was last trading at $43.20, up 45 cents.

In London, Brent crude (LCOc1: Quote, Profile, Research) scaled heights not seen since the Gulf War, peaking at $39.90, before trading at $39.67.

Oil staged its first assault on historic highs on Wednesday after news Russian oil giant YUKOS might face a ban on oil sales while courts try to enforce a multi-billion-dollar tax debt.

Prices retreated after Thursday's reprieve by the justice ministry allowed YUKOS to keep pumping, but the market remains on edge over the company's fate.

"There's a sense with YUKOS of postponing the inevitable. YUKOS's financial problems will get worse in the coming weeks and the market is very nervous that we will see some of its 1.7 million barrels a day shut in for some period," said Steve Turner, an oil analyst at Commerzbank Securities.

YUKOS has said the company could collapse by mid-August because of a freeze on its bank accounts and assets, adding that its rail shipments of oil, which make up a quarter of its total sales, could be affected soon.


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Khodorkovsky Should Be Tried, Say Russians

Russians want the tax evasion trial of Mikhail Khodorkovsky to continue, according to a poll by Russian Public Opinion & Market Research. 68 per cent of respondents believe legal action against the former YUKOS chairman should continue even if he pays his debts.

On Oct. 25, 2003, Khodorkovsky was arrested on tax evasion and fraud charges. YUKOS—the second-largest Russian oil conglomerate—is said to be on the verge of bankruptcy as a result of a $7 billion U.S. tax claim, which led to the freezing of the company’s bank accounts. Yesterday, the Russian government allowed the company to resume oil production.

Khodorkovsky’s arrest was considered as a forceful action after Russian president Vladimir Putin promised a crackdown on corruption. Other observers see the case as retaliation after the chairman supported Putin’s political rivals.

According to published reports, Putin is considering former Canadian prime minister Jean Chrétien to act as a mediator in talks between the Russian government, YUKOS and banks.

Polling Data

In your opinion, if Mikhail Khodorkovsky voluntarily pays all taxes, should the criminal case against him end?



Yes
24%

No
68%



Source: Russian Public Opinion & Market Research
Methodology: Interviews to 1,600 Russian adults, conducted in July 2004. No margin of error was provided.



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Russia Expects Yukos to Pay Tax Bill Within Month

Russia's Justice Ministry says it expects the embattled oil company Yukos to pay its multi-billion dollar tax bill in a month.
Russian news agencies quote chief bailiff Andrei Belyakov as saying the country's largest oil firm has already paid 20 percent of the $3.4 billion debt.

Oil prices soared to their highest level in years on Wednesday after Yukos announced it may have to stop oil production because of a court order. Yukos share prices also plummeted.

The oil prices eased and Yukos shares rebounded after the Justice Ministry denied on Thursday that such restrictions ever existed.

Critics say the government actions against Yukos are in response to former Yukos chief Mikhail Khodorkovsky's support of the political opposition. The Kremlin denies the allegation.


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Yukos Can Continue To Operate Three Oil Units

The Russian government on Thursday clarified a previous order freezing some assets of Yukos, which the country's largest oil producer had warned could have shut down its oil production.

The Justice Ministry said the company's three oil-producing subsidiaries Yuganskneftegaz, Samaraneftegaz, and Tomskneft could continue sales and production. But Yukos's property and assets remain frozen, as the company still faces a huge tax bill that it has been unable to pay.

A top Justice Ministry official on Thursday denied that Yukos had been ordered to halt production, after the threat of a stoppage pushed world oil prices to record highs on Wednesday. Andrei Belyakov, head of the Russian bailiffs' service, told the Itar-Tass news agency that the government had no intention of stopping production at Yukos: "We were not talking about banning the production, processing or supply and sale of oil."
Yukos on Thursday issued a statement saying that its three production units received notification from the Ministry of Justice dated Wednesday revoking earlier orders that prohibited "disposal or change of assets' status."

Government Intentions

"The decision of the Ministry of Justice to revoke its previous orders is consistent with our understanding of the government intentions with regards to oil production and distribution, and is welcomed by Yukos," the company's chief executive, Steven Theede, said in an e-mailed statement. "In a larger sense, we continue to work toward a satisfactory resolution of the tax issues and remain hopeful that one can be achieved."

Yukos, whose former chief, Mikhail Khodorkovsky, is facing trial for fraud and tax evasion, on Wednesday had warned that it had been ordered to shut down production within days as part of a broader investigation into the company.

Yukos produces about 1.6 million barrels per day, or 2 percent of the world's oil supply, and the possibility that its production might be halted sent oil prices to record levels. Bailiffs in Russia are thought to be preparing to confiscate and then to sell Yukos's most important asset and largest subsidiary, Yuganskneftegaz.

Yukos Output

The business produces about as much crude as some oil-producing countries and accounts for around 60 percent of Yukos's output. Separately, the head of the Organization of Petroleum Exporting Countries said the cartel was extremely concerned about the problems at Yukos, which have roiled oil markets.

Yukos shares and the broader Russian market rebounded on Thursday following the authorities' reversal, but industry analysts warned that an outright grab of Yukos assets by the Kremlin represented a new risk for investors.

"This new era of minority shareholder risks differs markedly from the past," noted the Troika-Dialog brokerage firm in a note to clients.

In the wild 1990s era of Russia's privatization, the note continued, "it was greedy oligarchs elbowing out minority investors. Now it is the sharp elbows of the state that are pushing minority shareholders' interests aside. The Yukos endgame shows that, just as the oligarchs hurt minority investors in their bid to control assets, the state may also trample minorities in its effort to claw back assets."
In the absence of a political counterweight to balance the government's latest moves, the firm added, "investors cannot be blamed for wondering which company is next."


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BBC News footage

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Fears ease as Yukos keeps pumping

Beleaguered Russian giant Yukos can continue to produce and sell oil despite an earlier demand to stop output, according to Russian officials.

The Justice Ministry said writs barring property sales were not meant to stop Yukos pumping out oil, ending the confusion which pushed up oil prices.

Yukos is facing bankruptcy as courts try to enforce a $3.4bn tax debt.

The company, which pumps a fifth of Russia's crude output, said that operations were continuing as normal.

"The bailiffs' activities are aimed neither at blocking the bank accounts nor the economic activities of Yukos' subsidiaries," the Russian justice ministry spokesman said.

Market stabilises

Oil prices fell on Thursday from record peaks reached on the previous day after it became clear that Yukos could continue production.

US light crude lost 57 cents to $42.33 a barrel on Thursday after climbing to a peak of $43.05 on Wednesday, the highest in the contract's 21-year history.

In London, Brent crude oil fell 63 cents to $38.90 after scaling a 14-year high of $39.68 the day before.

Yukos accounts for 2% of the world's oil output, pumping out 1.7 million barrels a day.

The stock of Russia's largest oil exporter has plunged to record lows since the country's richest man and Yukos founder Mikhail Khodorkovsky was arrested on fraud charges.

From a level of about $16 a share prior to the arrest in October 2003, the price had plummeted to a three-year low of $2.90 by the time it became apparent that Yukos bailliffs' action could stop it producing oil.

Thursday's relief rally saw Yukos shares soar 20%, as market fears died down.

But investors are still jittery.

"We believe that the row over this bailiffs' demand to the Yukos subsidiaries will prove a sideshow," said market analyst Christopher Granville at UFG.

"The real threat from Yukos' tax debts lies not in the disruption of the company's operations, but in the total destruction of shareholders' equity."

Kremlin pressure


The Russian government sent in the bailiffs after Yukos's failure to pay a $3.4bn (£1.9bn) tax demand.

The company says it does not have the cash on hand to pay the bill in full, but has offered to stagger the payments over several years.

Market commentators have criticised the Russian government for focusing on a company founded by a man who has become a political opponent to President Putin.

Foreign investors are jittery and the actions against Mr Khodorkovsky have drawn into question Russia's commitment to rule of law and protection of shareholder and investor rights.

Earlier this month, President Putin said it was not in his government's interest to see Yukos go bankrupt.

But Yukos's chief executive Steven Theede told reporters that he had been given few signs so far that authorities wanted the oil giant to stay in one piece and out of Kremlin-friendly hands.

Yukos is still pumping, but oil supplies could still be affected within the next three weeks as its bank accounts are frozen, leaving the firm unable to pay pipeline and rail operators to transport its oil.


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Chretien tapped to mediate Yukos dispute

Former prime minister Jean Chretien will act as mediator in a dispute between the Russian government and the country's biggest oil producer, OAO Yukos, according to a report.

The Russian newspaper Kommersant said President Vladimir Putin wants to give Chretien mediator status in negotiations between the parties. As well, sources told CTV News that Chretien has been asked to act as an intermediary between Yukos and its Western creditors.

The report has not been confirmed by Chretien's Montreal-based law firm, Heenan Blakie LLP.

Citing unofficial sources, Kommersant also reported that a July 5th meeting between Chretien and Putin had focused on the ongoing situation with the oil company.

Yukos' founder, Mikhail Khodorkovsky, is charged with fraud and tax evasion in a case involving the 1994 acquisition of a fertilizer company, and the company owes as much as $10 billion US in back taxes.

Other major shareholders have also been investigated as part of the Yukos probe, which some say is a vendetta by the Kremlin.

Khodorkovsky has in the past been an outspoken critic of Putin and has also financed opposition parties. As well, Putin's deputy chief of staff, Igor Sechin, who also heads up Russia's seventh largest publicly-run oil company, reportedly led a push for the Yukos probe.

Financial analysts believe Sechin's Rosneft oil firm would attempt to buy Yukos assets at a steep discount should the oil giant go bankrupt, a move that would effectively nationalize Russia's oil industry.

Yukos owes $1-billion to its Western creditors, and its loans have been declared to be in default, which means payment can be demanded at any time.

On Wednesday, the oil giant warned that frozen assets may force the closure of three of its production units, costing thousands of jobs.

With Russia producing the most oil only behind Saudi Arabia, the news sent crude oil prices soaring to record highs -- closing Wednesday at just under $43.

Yukos lawyer Igor Gololobov said the resulting shutdown at oil fields and refineries could lead to "the biggest social crisis in the modern history of the Russian Federation."



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Moscow City Court legalizes arrest of Khodorkovsky lawyers' accounts

The Moscow City Court has confirmed that the arrest of the Swiss bank accounts of former Yukos CEO Mikhail Khodorkovsky's lawyers, Vasily Aleksanyan and Anton Drel, was legal.

Anton Drel has told RIA Novosti that the Moscow City Court denied the cassation of Khodorkovsky's lawyers against the March 19 ruling of the Basmanny Court of Moscow to authorize the arrest of the Swiss bank accounts.

Previously, Khodorkovsky's lawyer, Genrikh Padva, quoted the prosecutors as saying that there was evidence that part of the embezzled money might be in a Swiss bank. The names of Aleksanyan and Drel featured among the companies, legal entities and individuals.

In March, Moscow's Basmanny Court authorized the arrest of Swiss bank accounts of twenty people featuring in the Yukos case. According to the Prosecutor General's Office, Mikhail Khodorkovsky, Menatep head Platon Lebedev, former head of the Russian State Humanitarian University Leonid Nevzlin and other people in the case have over 6.2 billion Swiss francs (about $5 billion) in five Swiss banks.

"At issue are not assets, shares or other securities, but private monetary deposits of individuals who are involved in large-scale embezzlement," the prosecutors noted.

Khodorkovsky, now in custody, is accused on several points of indictment according to the Russian Criminal Code, including large-scale embezzlement and tax evasion. Khodorkovsky is pleading not guilty.


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Moscow court rules to keep YUKOS ex-security chief under arrest

The Moscow City Court on Thursday ruled to keep in custody the former head of the economic security department of the YUKOS oil giant, Alexei Pichugin.

Thus, the court turned down the appeal filed by the defendant’s lawyers, Pichugin’s lawyer Mikhail Zhidkov told Itar-Tass.

In the view of lawyers, the judge did not consider the issue of extension of the term of the defendant’s confinement in a separate judicial examination, as it is stipulated by the Code of Criminal Procedure.

According to the lawyers, the judge, while announcing preliminary hearings, with a stroke of the pen just ruled to keep Pichugin in custody.


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Moscow City Court upholds legality of Khodorkovsky remand

The Moscow City Court on Thursday upheld the legality of retention in custody of YUKOS ex-CEO Mikhail Khodorkovsky and YUKOS co-owner and head of the MENATEP group Platon Lebedev.

The court thus turned down a corresponding cassational appeal filed by Khodorkovsky and Lebedev lawyers against the decision of the Meshchansky district court of Moscow of June 8 and 16 to keep them in custody.

On June 8, the court automatically extended their custody term and on June 18 it turned down the appeals to change the measure of restraint.

The lawyers considered the court ruling to keep the defendants in custody unlawful, referring, in particular, to the decision of the Constitutional Court of July 8 to the effect that such appeals cannot be considered in the absence of the accused (Platon Lebedev was not present in court on June 16 - Itar-Tass).

In the meantime, public prosecutor Dmitry Shokhin pointed out that the decision of the Constitutional Court was published after the Meshchansky court ruling, so the district court could not take in into account.

In addition, Shokhin referred to Article 225 of the Criminal Procedure Code that allows to keep the defendant in custody during the court proceedings within six months if the court found no grounds for vacating or changing of the measure of restraint in the form of detention in custody.


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Threat to Oil Giant YUKOS Sales Lifted

Russia lifted the threat of a halt to oil sales by the country's largest oil firm YUKOS on Thursday, prompting its shares to surge and easing tension on tight oil markets.

The decision followed a day of drama on Wednesday, when a warning by YUKOS that an asset freeze ordered by bailiffs could hit oil sales by its operating companies, which pump a fifth of Russia's oil, pushed U.S. crude oil futures to record highs.

"The Ministry of Justice has officially recalled the ban on property alienation it had previously imposed on Yuganskneftegaz, Samaraneftegaz and Tomskneft," YUKOS spokesman Yevgeny Fokin said in an e-mail to reporters.

Oil prices fell from record levels on relief that oil supplies from Russia -- the world's number-two oil exporter -- may not be disrupted. Eastern European customers Poland and Hungary said there were no problems with YUKOS deliveries.

YUKOS shares rallied by over 20 percent after diving to three-year lows on Wednesday, but the shares pared gains late on to stand 13 percent up at 94 rubles.

"The companies themselves have regained legal control over their property, and above all the right to sell oil and carry out financial transactions," a YUKOS source said.

But the source said an existing ban on fixed-asset sales by YUKOS's operating units remained in force. Justice ministry letters released by YUKOS confirmed that view.

The justice ministry denied any intent to disrupt YUKOS's Siberia-based production operations. "The bailiffs' activities are aimed neither at blocking the bank accounts nor the economic activities of YUKOS' subsidiaries," a spokesman said.

VALUE DESTRUCTION

The apparent climbdown by the authorities may offer little respite for YUKOS, which has said it could collapse by mid-August as bailiffs seek to recover a multi-billion-dollar tax debt while its bank accounts and assets are frozen.

A YUKOS lawyer said the company would appeal a value-added tax demand which makes up $1.6 billion out a total of $7 billion in current and pending tax liabilities for 2000 and 2001.

"YUKOS will demand zero-rate VAT," YUKOS lawyer Dmitry Gololobov said. "If the inspectorate refuses to adopt the zero rate and to reimburse, we will appeal those decisions."

Bailiffs plan to sell YUKOS's largest unit Yuganskneftegaz, culminating what is widely seen as a Kremlin campaign to destroy the business empire of politically ambitious former CEO Mikhail Khodorkovsky, who is on trial for tax evasion and fraud.

"We believe that the row over this bailiffs' demand to the YUKOS subsidiaries will prove a sideshow," commented Christopher Granville at brokerage UFG.

"The real threat from YUKOS' tax debts lies not in the disruption of the company's operations, (but) in the total destruction of shareholders' equity."

Khodorkovsky's trial, which began in mid-June, resumed on Thursday, with the prosecution presenting case documents.

The Moscow city court threw out a request for Khodorkovsky and co-defendant Platon Lebedev to be released on bail for the duration of the trial.

Both could go to jail for 10 years if convicted, but there is little sympathy among Russians for the pair, judging by a new opinion poll.

A majority of those polled said YUKOS should be taken over by the state or forced to pay its taxes and its top managers prosecuted, polling group ROMIR said. Only 19 percent said legal action against them should be dropped if YUKOS paid its taxes.


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Russia allows Yukos to pump oil, easing global energy crunch

Russia said that embattled giant Yukos could continue pumping oil after initial reports that its operations would be halted within days pushed world oil prices to historic highs.

Yukos shares ended the day up 13.24 percent on the news and global oil prices eased off record highs they reached Wednesday in part because of uncertainty about one of the top two world oil exporting countries.

Yet the market capitalization of Yukos remains below the potential tax bill that could bankrupt Yukos within weeks and see its jailed founder Mikhail Khodorkovsky lose a company that became a Western darling for its fair business practices.

The official orders signed by a justice ministry bailiff concern Yuganskneftegaz, Samarneftegaz and Tomskneftegaz -- the three production units that account for 1.6 million of the 1.7 million barrels of oil that Yukos pumps out on a daily basis.

The orders said the three could continue sales and production. But they confirmed that their property and other assets remained frozen as Yukos faces a massive tax bill that the company has been unable to pay.

Yukos is Russia's largest oil exporter but its stock has plunged to record lows since the arrest on fraud charges of the country's richest man and company founder Mikhail Khodorkovsky.

It had slumped to under three dollars on the dollar-denominated RTS index at Wednesday's close. The stock was worth about 16 dollars before Khodorkovsky's arrest at gunpoint in his own company jet in October.

Yukos faces a 3.4 billion dollar tax bill for 2000 that it cannot fully afford because its assets have been frozen.

A company chief executive said Wednesday that Yukos planned to cover 700 million dollars of the bill by the end of the month.

Additional bills for 2001-2003 could bring that sum to nearly 10 billion -- a figure now greater than the company's market capitalization.

Its chief executives and lawyers have repeatedly warned that Yukos could be forced to declare bankruptcy within days and end the existence of a company that is seen as one of Russia's most transparent in a climate where business activity is often murky and corrupt.

The jailed Khodorkovsky and his top associate Platon Lebedev face their own tax evasion and fraud charges that could land them in prison for up to 10 years.

Yukos chief executive Steven Theede told reporters on a trip to Siberia Wednesday that he was in constant negotiations with the authorities and said he was not giving up hope that Yukos could still be saved.

However Yuganskneftegaz -- the company's principal producer -- is due to go on the market to pay back taxes this year.

The sale is already a body blow to Yukos but should not theoretically affect world oil prices since Yuganskneftegaz would remain operational.

But analysts agree that it will hurt the Russian investment climate as the government zeros in on a company founded by a man who has since turned into an open political opponent to President Vladimir Putin.

They also say that while many competitors -- and the government -- may be sizing up Yukos, it is in no one's interests to see a production halt.

"While we can theorize about winners emerging from just about any endgame, shutting down production would seem to aid no one in business or government," Adam Landes of Renaissance Capital wrote in a research note.

"Yukos production is very valuable to the government and the company -- at current prices it is worth something in the range of 70 million dollars (58 million euros) a day to Russia in total revenues," he said.

Meanwhile, Alfa Bank said in a research note said the escape route for Yukos now was to declare voluntary bankruptcy.

"The company would theoretically gain time (for up to six months) and process, as a court-appointed administrator would have to compile a 'hierarchy' of assets for sale to settle claims," the bank said.

Putin this month said that it was not in the government's interest to see Yukos go bankrupt. But its chief Theede told reporters that he had received few signs so far that authorities wanted to see Yukos stay in one piece.


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BBC News Video footage

BBC News video footage HERE

Putin Destroying Yukos Economic Empire - EU Official

A senior European Union official said Tuesday that Russian President Vladimir Putin is deliberately trying to destroy the economic empire of Mikhail Khodorkovsky, detained founder of oil giant Yukos, Reuters news agency reports.

“We interpret this as a decision of President Putin to destroy an economic empire which had certain strategic goals of political influence,” Reuters quoted Eneko Landaburu, the European Commission’s Director General of External Relations, as saying to the European Parliament.

“What’s happening here is essentially a settling of accounts,” he said when asked about moves by Russia to force the sale of Yukos’ main production subsidiary, Yuganskneftegas, to pay a $3.4 billion tax bill.

Most EU leaders have been cautious in commenting on the Yukos case.

However, Landaburu, the top civil servant under EU External Relations Commissioner Chris Patten, told parliament’s foreign affairs committee he saw no sign the Kremlin was trying to take over running the economy, Reuters reported.

He said it was clear the Yukos crisis was worrying foreign investors in Russia, whose economy is heavily reliant on the raw materials sector, especially oil and natural gas.

But Russia’s general economic strategy was to build a market economy and the Yukos case appeared to be a one-off, Reuters quoted Landaburu as saying.

Relations between Russia and Brussels have already been strained this year over the EU’s enlargement into former communist Eastern Europe.

There has also been concern in both Brussels and Washington that Putin has been emphasizing economic reform at the expense of democracy and political liberalization.

Patten has said the rule of law should apply as rigorously to companies as to individuals in Russia and that it was no surprise the case had caused a good deal of concern.


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State oil firm expected to get key Yukos asset

A powerful Kremlin aide was voted chairman of the board of Russia's state-controlled Rosneft oil company yesterday, sparking speculation that the firm will get the prized production arm of OAO Yukos.

Igor Sechin, who is rumoured to be one of Russian President Vladimir Putin's closest advisers and serves as deputy chief of staff, was elected chairman of Russia's only state oil company, the country's seventh-largest petroleum producer.

"I absolutely think that Rosneft is in the market for Yukos assets," said Stephen O'Sullivan, co-head of research at the UFG brokerage.

Yukos and its major shareholders have been under investigation for a year in a case that many say is Kremlin payback for the political ambitions of its billionaire founder, Mikhail Khodorkovsky, who financed opposition parties and openly criticized Mr. Putin's government.

Mr. Sechin, 43, is a leader of the hard-line camp within Mr. Putin's administration that is widely believed to be behind the investigation of Yukos and its main owners.

Mr. Khodorkovsky is standing trial with a top associate on fraud and tax evasion charges and faces up to 10 years in prison if convicted. Yukos, meanwhile, faces a 94-billion-ruble ($3.2-billion U.S.) tax bill that could eventually total nearly 300 billion rubles.

A week ago, court bailiffs said they intended to sell Yukos's main production subsidiary Yuganskneftegas. The move would effectively take the heart out of what today is Russia's largest oil producer, as Yuganskneftegas accounts for 60 per cent of Yukos production.

Oil prices climbed yesterday, partly over concerns about supply disruption in Russia caused by the crisis engulfing Yukos, analysts said. U.S. light crude climbed as much as 78 cents to hit $42.22 a barrel, before closing at $41.84.

Yukos shares, which have steadily fallen since Mr. Khodorkovsky's arrest last October, have plunged since last week's announcement.

Shares were $16 when Mr. Khodorkovsky was arrested. Yesterday they closed down 60 cents at $3.60.

Market players in Russia have been speculating wildly about the state's choice as buyer of the Yukos subsidiary, with gas monopoly Gazprom, third-largest oil producer Surgutneftegas and Rosneft among the names mentioned most frequently.

Mr. O'Sullivan of UFG said the sale of Yuganskneftegas to Rosneft would make most sense, as it would introduce a state-controlled company as a major player in Russia, which relies heavily on its oil exports for government revenue.

"Surgut is state-sympathetic, but it's not state-owned and I think people forget sometimes that ownership is different from sympathy," he said. "If you add Yugansk to Rosneft, you end up with about 1.4 million barrels a day. . . . So you don't form Russia's biggest oil company, but one that is state-owned so it's very much under your control."





HERE

Russia's Yukos Warns it May Stop Oil Production

Russia's embattled Yukos oil company may have to stop production within days due to a new court order in the ongoing legal battle with the Russian government. The order is the latest twist in a case that critics say is politically motivated and may break apart Russia's largest oil company.

Court officials ordered Yukos to halt the sale of all company property including oil, in a move that company officials warn will likely cause the company to collapse.

Currently Yukos produces 1.7 million barrels of oil per day, around 20 percent of Russia's output.

The company has already had all of its bank accounts and other assets frozen by court order in a case that the Kremlin says is intended to crack down on corruption.

But critics say that politics is what really lies behind the legal assault on the company as well as in a parallel case against Yukos' former director Mikhail Khodorkovsky and another top shareholder. The two men are now on trial in Moscow for fraud and tax evasion.

Yukos has long warned it may be forced into bankruptcy after the court ordered the company to pay a back-tax bill that could total $10 billion.

But company officials say the freeze on assets prevents them from paying the taxes and all attempts to negotiate a phased payback have been rebuffed by the government.

Since it started a year ago the Yukos affair has rattled nerves in financial circles around the world and raised questions about the Kremlin's stated commitment to property rights and economic reforms.

The new court order applies to Yukos' main operating units, including Yugansk-Neft-Gaz which accounts for 60 percent of total output.

Last week, court bailiffs announced that Yuganzk-Neft-Gaz would be auctioned off in order to pay the tax bill, possibly at a price far below its estimated market value.

Ron Smith, an oil and gas analyst with Renaissance Capital brokerage firm in Moscow, says an agreement would be the best way out for all parties, but that the time for talking may already be over.

"We were thinking a negotiated solution would be far better, so if they do end up following through and sell it at a bad price, I will officially be surprised. But it could happen, it's looking more realistic every day," he said.

The latest order led to another steep plunge in the price of Yukos stock, to just under three dollars. The company has also warned that a halt in production could force thousands of employees out of work, at least temporarily.

But predictions of disaster were brushed off by Justice Minister Yury Chaika, who was quoted by Russian news agencies as calling such statements blackmail.

He reportedly said that Yukos will have no problems, including payment of salaries.

Analysts say any sale of Yukos assets would likely mean a transfer to other oil companies that are on good terms with the government.



HERE

Oil hits new highs on Yukos woes

Worries over the financial crisis at Russian oil giant Yukos have seen the price of oil hit new highs. Brent crude surged to $39.25 a barrel in late afternoon trade, its highest level in 14 years, as bailiffs ordered Yukos to stop sales.

In the US, light crude jumped to $43.05 - 60 cents above June's 21-year high.

The fresh surge followed news that Yukos, which pumps 20% of Russia's output, had been ordered to stop production by bailiffs.

Russia is the world's second biggest oil exporter after Saudi Arabia.

According to news agencies, the Russian justice ministry has told Yukos to stop selling property - an effective ban on oil sales.

Little spare capacity

If Yukos has to halt production, up to 1.7 million barrels a day could be affected.

Production from the Opec cartel of oil-producing countries is already at its highest level since 1979, to meet huge consumption growth in China and the US.

It is pressing ahead with a renewed increase in capacity in August.

But Venezuela's oil minister said on Tuesday that Opec had little spare capacity to help lower high oil prices.

"A cut is not foreseen, and most of the countries are near their production limits," Rafael Ramirez told Reuters news agency.

The gains in prices came despite figures from the US Energy Information Agency, which showed stockpiles building back to average levels.



HERE

Yukos ordered to stop selling oil

Russian regulators have told Yukos to stop selling oil following its failure to pay a $3.4bn (£1.9bn) tax demand.
Bailiffs said sales were to cease from Yukos' main production units, which produce 20% of Russia's oil output.

The move, which could speed up the collapse of the firm, triggered a leap in oil prices to a new 21-year high of $39.25 a barrel in New York.

Russia's Micex exchange suspended trade in Yukos shares indefinitely after they plummeted 20% earlier in the day.


'Misinterpretation'

Yukos chief executive Stephen Theede said the bailiffs' actions were illogical.

The BBC understands that Yukos has contacted the justice ministry for more clarification on the demands.

"My assumption was that it was a misinterpretation. It does not seem logical to me for the bailiffs to take action to immediately stop production," Mr Theede told correspondents in Nizhnevartosk in Siberia.

"We have no choice but to comply with what the bailiffs ask us to do, but sometimes it's a matter of getting an interpretation."

According to news agencies, the justice ministry told Yukos to stop selling property - an effective ban on oil sales.


Reuters quoted letters sent by bailiffs to Yuganskneftegaz, which last week was put up for sale at what Yukos said would be a knock-down price, Yukos units Samaraneftegaz and Tomskneftegaz

"I demand ... an immediate halt, from the moment of receiving this order, to any activities directed at selling or changing the status of the property of ," one read.

"It should be pointed out that the process of providing oil into the... pipeline system cannot be ceased without stopping... all of the companies' activities," a Yukos spokesperson said.

This "will lead to the unemployment of 15,000 employees of the companies", he warned.

'No word'

The justice ministry, however, dismissed the claim.

"I am officially announcing that the company will have no problems, including with paying wages, as a result of a freeze of its accounts," justice minister Yury Chaika was quoted by Russian news agencies as saying.

The order appears to have had no impact on agreements to transport crude and petroleum products out of the Baltic and Black Sea, ship brokers told Reuters.

"We've had no word of cancellations or anything like that - it's business as usual," one broker said.

"It might be different for future bookings, though."

Once sales stop, Yukos could go to the wall relatively quickly, said analysts.

"This doesn't give Yukos long, because all of a sudden new cash flows stop coming in," said Stephen O'Sullivan, oil analyst at brokerage UFG.






HERE

Court Upholds Order on Yukos Account

A Moscow court on Tuesday upheld a decision to freeze the Swiss bank accounts of Yukos, Russia's largest oil producer, and several of its principal shareholders, Russian news agencies reported, while shares in the beleaguered company sank another 15 percent.

The accounts were frozen in March after a similar decision by another court, but Swiss authorities later overturned much of the freeze order. Tuesday's court ruling means Russia's federal prosecutors would have to petition Swiss authorities to reinforce the freeze.

The ruling comes amid intensifying pressure against Yukos on an overdue 99.4-billion-ruble ($3.4 billion) back taxes bill for 2000 that the company warns could drive it into bankruptcy. Authorities say Yukos owes a similar amount for 2001 and have indicated they may make further demands for subsequent years. Yukos has asked for two years to pay the bill, but so far there has been no indication the government is willing to compromise.

Bailiffs last week said one of Yukos' key production arms, Yuganskneftegaz, was being prepared for sale to settle the 2000 bill - a move that Yukos warned could sap the company of revenue to keep other operations going and that could make it unable to fulfill export contracts.

Yuganskneftegaz produces 60 percent of Yukos's 1.7 million barrels per day output and the possibility of a state-sponsored sell-off of a prize asset - possibly at fire-sale prices - has driven the share price down.

Yukos shares closed down 15 percent on Moscow's RTS index on Tuesday - a day after dropping more than 20 percent - and trading in the shares was temporarily frozen for the second day in a row on the MICEX exchange after they fell by more than 10 percent.

"Yukos shares could be worth anything at the moment," said James Fenkner, head of research at Troika Dialog. "But if the company doesn't cut a deal with the government then they won't be worth anything."

The tax case is part of a complex web of legal actions against Yukos and its former CEO Mikhail Khodorkovsky that are widely seen as a Kremlin-led drive to punish Khodorkovsky for funding opposition political parties and to stifle his presumed political ambitions.

Khodorkovsky, who was arrested in October, and associate Platon Lebedev are on trial on charges of forgery, fraud and tax evasion.

Fears that Yukos or its assets could be turned over to Kremlin-friendly executives intensified Tuesday when the state-owned oil company Rosneft said that Igor Sechin, a deputy head of President Vladimir Putin's administration, has been appointed its chairman of the board.

Sechin, a close Putin ally, is seen as an architects of the law enforcement campaign against Yukos. Along with natural gas monopoly Gazprom and Kremlin-connected Surgutneftegaz, Rosneft is seen as a likely buyer for Yuganskneftegaz or other assets if they are sold.

Also on Tuesday, Interpol's Moscow division said it has forwarded charges of complicity to murder and attempted murder against core Yukos shareholder Leonid Nevzlin to law enforcement authorities in other Interpol states and in Israel, the Interfax news agency reported.

A Moscow court issued an arrest warrant Monday for Nevzlin, who lives in self-imposed exile in Israel.



HERE

Yukos shares continue to fall

Shares in embattled oil firm Yukos have continued to fall amid concerns that its financial collapse may be imminent.

Meanwhile, the European Union has accused Russia's president of trying to ruin the economic empire of Yukos founder Mikhail Khordokovsky.

Yukos lost a fifth of its stock market value in a single day's trading on Monday and its shares fell a further 14% in early trading on Tuesday.

Rouble denominated shares were down to their lowest level since October 2001.


Political campaign

Following news of the slide, European Commission Director General of External Relations Eneko Landaburu accused President Vladimir Putin of carrying out a vendetta against Mr Khordokovsky due to their political differences.

"We interpret this as a decision of President Putin to destroy an economic empire which had certain strategic goals of political influence," he said.

"What's happening here is essentially a settling of accounts."

The on-going case against Mr Khodorkovsky is widely seen as a Kremlin-inspired drive to punish Russia's richest man for funding opposition political parties and to deter him from further political activity.

Yukos has warned it could be driven into bankruptcy after a court ordered it to pay a $3.4bn tax bill.

On Tuesday, a Moscow court upheld an earlier legal decision which froze a number of Swiss bank accounts belonging to the company and its subsidiaries.

Selling out

The court upheld a previous judgment from April, which had ordered the freezing of Yukos's Swiss bank accounts. Swiss authorities subsequently overturned much of the order.

Russia's federal prosecutors will have to petition Swiss authorities to re-enforce the freeze.

This selling is crazy. Someone has decided it is better to sell and get $1m than to get nothing

Andrei Kukk, Uralsib

Yukos shares fell 14% to 105.66 euros in Moscow while, on dollar denominated exchanges, they dropped 15.5% to $3.55.

The company's shares dived 22% on Monday, leading some analysts to argue that the company's chances of avoiding financial collapse were increasingly slim.

Yukos has lost more than half its market value since last Wednesday - one day after state bailiffs announced they intended sell off the firm's main production unit, Yuganskneftegaz, in order to help pay the company's $7bn tax bill.

Yukos executives have expressed fears that the unit, which accounts for 60% of its oil output, could be sold for as little as $1.75bn. Yukos values it at $30bn.

Analysts said that investors who had bought into the company in the hope that it may reach a settlement with the government in its tax dispute were now selling out.

"This selling is crazy," said Andrei Kukk, an analyst from Uralsib.

"Someone has decided it is better to sell and get $1m than to get nothing."

Criminal accusation

Yukos' problems deepened on Monday when an arrest warrant was issued for Leonid Nevzlin, one of its leading shareholders, accusing him of involvement in murder.

Leonid Nevzlin, who is living in Israel, is accused of ordering the killing of a married couple in 2002.

He also is facing charges of attempted murder.

A lawyer for Mr Nevzlin said the charges would be challenged.

Mr Nevzlin fled to Israel shortly before the arrest of the oil giant's former boss, Mikhail Khodorkovsky.

Mr Khodorkovsky is currently on trial on charges of fraud and tax evasion.

The court in Moscow's Basmanny district said the alleged killing and attempted murders were organised by Yukos's former head of security, Alexei Pichugin, on the orders of Mr Nevzlin, Interfax reported.

Mr Nevzlin is estimated to have a personal fortune of $2bn (£1.1bn), according to Forbes magazine.

He arrived in Israel last autumn as legal proceedings against Yukos were intensifying and was granted Israeli citizenship.

However, authorities in Israel have previously said that Mr Nevzlin's new citizenship would not automatically prevent his extradition to Russia.



HERE

Yukos workers face uncertain future

We're flying a couple of hundred metres above the ground. Our helicopter heads across a vast flat expanse that stretches as far as the eye can see.

Endless green marshes are cut through by myriad river channels, dotted with lakes. Here and there, clumps of fir and birch trees rise out of the muddy wastes.

This is Siberia. The name conjures images. A cold, hostile land. A place of exile. Of gulags and death.

But I am here to see the immense potential this wilderness holds. In the far distance is a tiny bright point of light. Curling into the clear blue sky is line of vapour. It is a flare, burning gas from deep under the ground, a by-product of the pumping of oil.

Empire

Oil is the key to Russia's future. Beneath the Siberian swamps there is enough wealth to transform this country.

Russia is now beginning to rival Saudi Arabia to be the world's biggest oil producer. This part of Western Siberia produces half of Russia's oil. Much of it belongs to Yuganksneftegaz, part of the Yukos oil empire.

On the ground we are taken to see Yukos' investments in the Priobskoye oilfield. Everything here has to be built on foundations of sand and concrete that lift it above the marshland, roads, oil wells, pumping stations, storage sites with lines of giant oil tanks.

Heavy trucks rumble along. Here and there men in oil stained uniforms wrestle with steel cables, heaving pipes into place.

Bankruptcy

There is a central hub where the oil workers live and eat. New accommodation blocks have clean rooms with towels carrying the Yukos corporate logo.

The logo is everywhere. On flags, on billboards, on worker's overalls. There is a spotlessly clean medical centre, and an efficient canteen.

Yukos is Russia's most profitable oil company. But Russia's authorities say the firm owes billions of dollars in taxes.

Since they have also frozen Yukos' bank accounts, it cannot pay the demands. Now they are planning to seize and sell off Yuganskneftegaz and the Priobskoye oilfield to recover the money.

Without access to its accounts and facing the loss of two-thirds of its oil supplies, Yukos has said it is on the verge of bankruptcy.

Prison

In the canteen the fate of the firm is on everyone's minds. Hardened oil workers are grim-faced.

"I don't know what is going to happen tomorrow. I don't even know if I am going to have a job," says Vyacheslav who has worked here for 15 years.

His friend Alec nods in agreement. "I'm afraid the company will be sold. I don't know what my salary will be, what benefits we will keep."

The reason Russia's government is relentlessly pursuing Yukos, many believe, lies in a courtroom far away in Moscow. There, sitting in the cage for the accused, is Mikhail Khodorkovsky, Yukos' main shareholder.

His personal fortune was estimated earlier this year at $15bn. He bought Yukos for a knock-down price in Russia's privatisations a decade ago. Now he is accused of tax evasion and fraud.

Property rights

Many believe Mr Khodorkovsky is on trial because President Putin wants to bring down a man who could be potential rival, and bring Russia's oil wealth back under Kremlin control.

Yukos' fate is also a warning to Russia's other oligarchs, the elite super-rich who snapped up huge chunks of the country's natural resources after the fall of Communism.

Men like Mikhail Fridman, also a billionaire from oil, banking and telecommunications, know they must now must toe the Kremlin's line.

Dressed in a tailored suit, Mr Fridman sits in his smart Moscow offices. Last year he went into a multi-billion pound partnership with Britain's BP oil company.

"I think this case, the Yukos case, very seriously generates concern in the international community about stability of property rights, stability of the investment climate," Mr Fridman says. "That's obvious."

Westernised

The treatment of Yukos has caused concern among investors and businessmen because the authorities seem determined to seize the firm's core components rather than less vital parts.

Yukos' tax bill currently stands at $3.4bn. Yuganksneftegaz is valued by Yukos at $30bn. And the authorities won't talk to the firm about any alternative settlement.

So many observers believe what is really going on is a ruthless move to seize Mr Khodorkovsky's wealth, to break his nascent political ambition, and to give Yukos' oil fields to owners who are closer to the Kremlin.

There is also concerns that in pursuing Mr Khodorkovsky the authorities may end up splitting apart a company that had turned itself into one of Russia's most modern, westernised firms.

Prosperous

The town of Nefteyugansk, Yukos' main base in Western Siberia, is home to 100,000 people. Before Yukos came, this was a grim Siberian outpost, lines of concrete dormitory blocks dumped on the banks of the River Ob.

No longer.

Today, Nefteyugansk has a new sports hall and modern ultrasound equipment in its hospital. Everyone is benefiting from the oil wealth.

Yukos is seen as one of Russia's most progressive companies. In the last couple of years it has begun investing in the local community, trying to show it can be socially responsible.

So people in Nefteyugansk, strolling along streets planted with neat flowerbeds, worry that the punishing of Mr Khodorkovsky will hurt them too.

One woman sitting on a bench in the late evening sunlight says "we hope Yukos keeps on working".

"Our future depends on it. We want everyone to be prosperous."

Nearby, Alexei, who works on a cargo ship that carries supplies up river into the heart of Siberia, says "Yukos' fate will touch us all".

"If it continues being prosperous, we will have a lot of work. The company has done a lot for its workers, for their children."

But it is politicians in far off Moscow who will probably decide if Yukos does go bankrupt in the next few weeks. If it goes under, the effects will be felt far beyond Siberia.

The prosperity of many may be affected. Russia's economy may be hurt. And if exports falter, the already high price of oil worldwide could rise further.



HERE

YUKOS likely to go bankrupt

YUKOS is likely to go bankrupt or to lose its core assets, expert with Rosbank Pavel Suprunov told RBC. At the same time, the government is not concerned much about possible tax losses that suspension of oil production by Yuganskneftegas may cause.

The only thing that is obvious now is that the main aim of a campaign against YUKOS is the controlling stake in the company, which Mikhail Khodorkovsky is not going to give up. Probably, a forced sale of Yuganskneftegas will make him more amenable but anyway, it may take place not earlier than at the end of this year. As such, Khodorkovsky has time to think it over.



HERE

Moscow court resumes hearings on Khodorkovsky case

Moscow's Meshchansky court will continue looking into the evidence against Mikhail Khodorkovsky, ex-chief of the YUKOS oil major, furnished by the prosecution.

On Friday, the court denied to close the criminal case against Khodorkovksy, Platon Lebedev, and Andrei Krainov who are accused of misappropriating Apatit shares. A petition filed by the YUKOS chiefs' defence lawyers for closing the criminal case on the misappropriation of 20% of Apatit shares under the limitations statute was found premature. "The court has not studied all the evidence on the matter provided by the prosecution," said judge Irina Kolesnikova.

The court supported prosecutor Dmitry Shokhin who had requested to turn down the petition as the court could not assess the evidence provided by the prosecution at this stage in full.

Investigators revealed that Platon Lebedev, who was President of Bank Menatep and a member of the Board of Directors of the Menatep financial group and the Russian-Swiss Trust and Trade joint venture, joined an organised group of people in Moscow in 1994, which was created and led by Khodorkovsky, who was chairman of the said three companies' boards of directors. The group was created for the misappropriation of Russian enterprises' shares during the privatisation campaign. Lebedev co-led the criminal group along with Khodorkovsky.

As Bank Menatep President, Lebedev provided bank guarantees to bogus companies that fraudulently acquired shares and issued financial liabilities that were executed as sales/purchase contracts.

Investigators found out that the group also comprised employees of Bank Menatep and other companies under the bank's, Lebedev's and Khodorkovsky's control. Chernyshova, head of Bank Menatep's privatisation department, and Krainov, a Menatep group employee, are also mentioned in the case file.

Krainov opened bogus companies and was the general director of the bogus Volna company on behalf of which Apatit shares were fraudulently acquired.

Chernyshova signed the contract for the purchase/sale of the Apatit shares on Volna's behalf, according to the conviction paper.

"Khodorkovsky and Lebedev arranged for the misappropriation of 20% of Apatit shares worth over $283 million in the summer of 1994," according to the case file. They thereby inflicted damage of over $1 billion on the Russian economy, according to investigators.


HERE

Yukos Shareholder Nevzlin on Wanted List; Shares Fall

Shares in OAO Yukos Oil Co., the country's biggest oil exporter, tumbled 21 percent after Russia put the company's second-largest owner, Leonid Nevzlin, on a wanted list over charges of attempted murder and murder.

Nevzlin, who lives in Israel, denied the charges, calling them ``laughable'' and the alleged crimes ``non-existent'' in an e-mail. The Basmanny District Court in Moscow ordered the arrest of Nevzlin for cases of three murder attempts and two murders, the Prosecutor General's office said in an e-mail statement.

Yukos and its owners have faced a year-long attack from Russian authorities, who have saddled the company with a $3.4 billion tax bill and accused its largest owner, Mikhail Khodorkovsky, of fraud in charges that could land him in jail for 10 years. A group of U.K. investors last week offered to pay Yukos's bills in exchange for a controlling stake in the company.

``The probability of any agreement with the government is very low,'' said Dmitry Loukashov, an analyst at Moscow brokerage Aton. ``At some point, investors lose hope. More people believe now that Yukos may be torn to pieces.''

Yukos shares closed down 32.21 rubles at 122.05 rubles, the lowest since November 2001, at 7 p.m. in Moscow. The Moscow Interbank Currency Exchange suspended trading in Yukos shares from 5:08 p.m. to 6:08 p.m.

Prosecutors accused Nevzlin of ordering Alexei Pichugin, a Yukos security official, to organize the murders of two Yukos competitors, Vladimir Kolesov in 1998 and Yevgeny Rybin in 1999, and a former Menatep Bank employee, Olga Kostina, in 1998. All three attempts failed, the prosecutors said. Nevzlin and Pichugin then organized the murder of an accomplice and his wife, the prosecutors said.

Pichugin was arrested in June 2003. He has yet to go to trial. Nevzlin fled to Israel last year and has been wanted since January on tax evasion and theft charges that he denies.

In interviews to Bloomberg in February, Nevzlin and another Yukos shareholder residing in Israel, Vladimir Dubov, said they were ready to give up his shares in exchange for the release of Khodorkovsky, Pichugin and another Yukos owner, Platon Lebedev, who also is in custody on tax evasion and fraud charges. Khodorkovsky rejected the proposal.



HERE

Consortium sees value in Yukos, mum on price

Investors offering to rescue and take over Russian oil firm Yukos see value in the company, consortium head Konstantin Kagalovsky told Reuters yesterday, but he declined to reveal the extent of their funds.

Mr Kagalovsky, an aide to former President Boris Yeltsin and a senior Yukos executive from 2000-02, said in an interview he had sent the proposal to main shareholder Mikhail Khodorkovsky, who is on trial for fraud and tax evasion.

"The investors want to make money on the fact that, if the company has no debts, its capitalisation will go up," he told Reuters by telephone from Britain.

"It's a normal financial investment." In a letter sent to President Vladimir Putin on Thursday, the British-based investor group offered to pay Yukos's multi-billion-dollar tax bill and bail out Mr Khodorkovsky in return for the controlling stake he and his partners own.

Yukos, Russia's largest oil producer, faces collapse under $7 billion in demands for back taxes, with officials seemingly intent on punishing both Mr Khodorkovsky and his company for his political ambitions.

The investors are silent on how much they could pay, but Mr Kagalovsky said they had enough funds. Financial markets have greeted the offer with scepticism.

"Our intentions are serious. You don't joke about these sorts of things. Billions are at stake," he said.

Yukos faces a back tax demand of $3.4 billion that is already in force and another $3.4 billion claim is pending. Its tax bill could top $10 billion after further audits, and Mr Khodorkovsky faces a personal bill of at least $1 billion.

Mr Kagalovsky said he was the only member of the consortium who had had interests in Russia.

Mr Kagalovsky, 46, has a long track record as a player in the politics, finance and business in the turbulent Russia of the 1990s.

He was a close adviser to Mr Yeltsin in the first years after the fall of the Soviet Union, personally meeting foreign leaders to negotiate loans to keep Russia afloat.

Russia's man at the IMF from 1992-94, he later joined Mr Khodorkovsky's Bank Menatep and was involved in its purchase of Yukos under the "loans for shares" scheme, the privatisation of industry at knock-down prices before Mr Yeltin's 1996 election.

He became a member of Menatep's board in 1999 and later served on the Yukos board of directors. In 2003, he ran for Russia's lower house of parliament on the liberal Yabloko party list. He failed to win a seat.

Mr Kagalovsky said that George Miller, who signed the letter to Mr Putin, was not a member of the consortium.

For a text of the letter, please click here Mr Khodorkovsky reacted to the offer through his lawyer during a break in his trial yesterday.

"Mikhail Khodorkovsky... welcomes any actions aimed at resolving the situation around the company. In any case, the last word remains with the board and he hopes it will make the right decision," lawyer Genrikh Padva told reporters.

Mr Khodorkovsky has reportedly agreed to hand over his shares to the state for nothing in return for Yukos's rescue, but the offer has been ignored by officials apparently intent on breaking up the company.



HERE

A Pyrrhic Victory

Images of last week: at the Khodorkovsky-Lebedev trial in the Moscow Meschanski Court the prosecutor is reading the 400-volume case with deliberate slowness. The defendants’ countenance demonstrates that for them, the trial is a farce. One is working his way through crossword puzzles, the other one is reading a book by Richard Pipes, a famous American historian of Russia (bravo, Mikhail, great choice! I wonder if Prosecutor Ustinov has read Pipes’ book; I won’t even mention senior officials).

So what, has everything been predetermined already?

It looks like Yukos’ fate actually has. Last Thursday, the company’s top managers announced that if the state auctions off the frozen Yuganskneftegaz stock (Yuganskneftegaz is the company’s chief industrial asset), a Yukos bankruptcy is inevitable.

Mikhail Khodorkovsky, in turn, has published a statement that in this situation, Yukos must be headed by a state representative. The former head of the oil company is desperate to keep it alive. Obviously, no longer for himself or his partners: politically, that is not an option. Most likely, he just feels sorry for all his work, for his brainchild, a still operational oil company with average monthly revenues of $1.8 billion. Will the Kremlin react to this?

I’ll be amazed if it does.

One very well informed politician has said to me, on condition of confidentiality: “There must be nothing left of Yukos, not even a name; that’s the order from the very top.”

The defense at the Khodorkovsky-Lebedev trial can complain all it likes that the prosecutor is taking so much time to read the volumes of the case, unembarrassed to quote the same document several times, drawing out the trial. He’s got nowhere to hurry. Until the Yukos pogrom is over, until there is no doubt that Khodorkovsky will never get his company back, it doesn’t look like he’ll be in any hurry.

Top Yukos managers can get as frustrated as they like that they’ve sent eleven letters to various government institutions, only to get no reply. They can send hundred of letters if they like. They can lament the fact that according to the law, Yukos’ industrial assets such as Yuganskneftegaz have to be sold last. They can say that this asset costs many times more than the amount the state wants to sell it for, and its established oil resources are worth as much as $30 billion.

It’s all in vain, because the government’s motives are not in a rational economical plane.

It’s about politics. Carthage must be destroyed. If the enemy does not surrender, he must be destroyed. And sometimes it’s about plain revenge.

The memories of 1917 come back.

The Bolsheviks stripped landowners and capitalists of their property (assets, we would say today). There can be different attitudes towards this, but it’s a historical fact. It’s just that there were different ways to handle the goods that were taken away. Sometimes they were taken care of rather pragmatically. The confiscated estates were turned into resorts for the victorious proletariat, or into dachas for the leaders. Most often, however, they were burned to the ground, moronically, vengefully.

Some, for instance, seized merchant Ryabushinsky’s famous Moscow villa and gave it as a residence to a great proletarian writer, and when he died, turned it into a Gorky museum. As a result, thank God, at least the building was preserved, a masterpiece of Russian modernism with unique Schechtel interiors.

Others gave the requisitioned manors to assorted riffraff. That is what happened to merchant Sergey Schukin’s house in Moscow, where he had gathered a unique collection of European paintings, including Van Gogh, Cezanne, Renoir, Picasso, and Matisse.

Eyewitnesses say that in Schukin’s manor, eventually handed over to the Defense Ministry, the former Claude Monet room housed a “Lenin Room” with fiberboard walls in the late 70s. Why was all of this done? There is no answer.

Why, for instance, was prominent liberal historian Nikolay Romanov shot in 1919, despite Gorky’s begging for mercy on his behalf? For being a Romanov, a Great Prince and the grandson of Nicholas II. Lenin had replied to Gorky: “The revolution needs no historians.” Now we need no outstanding businessmen, who are born no less often, by the way, than outstanding historians or writers.

All of this reminds me of the end of the Prague Spring as well. As Alexander Genis and Pyotr Vail have so appropriately noted, after Soviet troops occupied Czechoslovakia on August 21, 1968, in the Soviet Union, “the sixties ended before their time and the nothingness years began: Tvardovsky’s ’New World’ was still being published, protest letters were still being signed, no one had started to leave Russia forever yet…But all of this was just inertia on the part of history, which had gained momentum and was lunging forward like a chicken with its head cut off.”

The Yukos pogrom will most likely start another “epoch of no time” in our history, sad as it may be. It might still have room for liberal and progressive media for a while, it might produce good books, movies, and performances, it will most likely be marked by relative prosperity. But it will be stuffy, apathetic, stagnant, full of corruption and emigration. This is the price the country will be forced to pay for yet another Pyrrhic victory.

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Lawyers want some charges against Khodorkovsky, Lebedev dropped

The lawyers representing former Yukos CEO Mikhail Khodorkovsky and MFO Menatep head Platon Lebedev submitted a plea during proceedings Friday at Moscow's Meshchansky court calling to clear their clients of charges that they had fraudulently appropriated a state-owned 20% stake in the Apatit fertilizer producer worth more than $283 million.

The lawyers explained that the ten-year statute of limitations on these charges expired on July 22, an Interfax correspondent reports.

According to the lawyers, the documentation on handing over the 20% Apatit stake to the company Volna, which was controlled by Khodorkovsky and Lebedev, was signed on July 22, 1994.

One of Khodorkovsky's lawyers, Genrikh Padva, who submitted the plea on behalf of his client and Lebedev, said that fraud is qualified as a serious crime.

Under Article 78 of the Criminal Code, a person "no longer has to stand trial if ten years have passed since committing a serious crime," Padva said.

A similar plea has been sent from the lawyers representing the third defendant in the case, Andrei Krainov.

Counsel for the prosecution Dmitry Shokhin has categorically objected to the pleas. "The plea is, at the least, based entirely on an inaccurate interpretation of the legislation on criminal procedure," Shokhin said.

The court has adjourned to make a decision on the pleas.


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Bid Interest Halts Share Slide of YUKOS

An offer by UK-based investors to rescue Russian oil firm YUKOS arrested a dramatic slide in the bankruptcy-threatened company's share price on Friday, but analysts doubted a life-saving deal was possible. YUKOS shares plumbed 30-month lows this week after bailiffs announced their intention to sell core unit Yuganskneftegaz, which produces 60 percent of the group's 1.7 million barrels per day of crude, a move the company says will cripple it.

With its bank accounts frozen by courts demanding $7 billion in back taxes -- half immediately -- Russia's largest oil firm warned it may be broke by mid-August. But it stopped short of filing for bankruptcy, keeping investors' hopes alive.

A consortium led by former YUKOS board member Konstantin Kagalovsky sent a letter to President Vladimir Putin offering to buy out main shareholders including Mikhail Khodorkovsky, who is on trial for fraud and tax evasion.

"Our intentions are serious. You don't joke about these sorts of things. Billions are at stake," Kagalovsky told Reuters.

YUKOS rouble shares closed up 0.35 percent higher at 154.00 -- but still down on the week. The less liquid dollar stock rose 5.94 percent to $5.35.

The government has already received other rescue proposals from YUKOS and other companies, but has so far failed to respond to them.

U.S. ambassador Alexander Vershbow, visiting YUKOS headquarters a day after the company's latest statements, described the official silence as baffling.

"We are somewhat puzzled by the lack of any response thus far to these proposals, but we hope that a solution can be found that would allow this Russian company to continue to do business," Vershbow said after meeting YUKOS CEO Steven Theede.

WELCOME BID

Kagalovsky, a former aide to Putin's predecessor Boris Yeltsin, did not say how much the group could pay. One of Khodorkovsky's lawyers said his client welcomed the bid. Another flew to Britain, where the group is based.

"Mikhail Khodorkovsky ... welcomes any actions aimed at resolving the situation around the company. In any case, the last word remains with the board and he hopes it will make the right decision," his lawyer Genrikh Padva told reporters.

Padva was speaking during a break in Khodorkovsky's trial, where judges turned down a defense plea for charges to be dropped relating to a company acquisition a decade ago. He faces imprisonment for up to 10 years if convicted.
Analysts say YUKOS's demise is a Kremlin punishment for Khodorkovsky's political ambitions.

Putin, meeting local leaders in southern Russia, restated his opposition to any review of privatisation deals clinched in the turbulent aftermath of the collapse of Soviet rule, some in murky conditions.

"I believe that it should be clear to us all that this procedure can be carried out only in the framework of court rulings," Russian news agencies quoted him as saying.

"There can be no question here of political decisions. It is absolutely out of the question."

Analysts said the chances of the Kagalovsky bid were no better than earlier failed overtures.

"To the best of our knowledge, nobody has yet received any response to their letters. It will be no surprise then if these latest proposals from the consortium meet a similar fate," UFG brokerage said in a research note.

U.S. ambassador Vershbow said the handling of the YUKOS case could damage Russia's investment climate.

"We are certainly interested in seeing our energy partnership with Russia grow and seeing Russia establish a climate for foreign investment that is welcoming," he said.

"The handling of this case, however, could have very different effects."



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Khodorkovsky confirms UK letter sent to Russian government

Former CEO of Russia’s oil major Yukos Mikhail Khodorkovsky has confirmed that a letter from U.K. investors proposing to pay off Yukos’ tax debts, has been sent to the Russian government, Khodorkovsky’s lawyer Genrikh Padva told ITAR-TASS Friday.

“Khodorkovsky confirmed that the letter is with the government,” Padva said, adding that his client welcomes all measures being taken to settle the situation.

Meanwhile, a source with Moscow’s Meshchansky Court, which is hearing Friday the united case against Khodorkovsky and his business partner Platon Lebedev, said that “Khodorkovsky’s lawyer Anton Drel has set off to London to negotiate with the investors over the contents of the letter.”

Reportedly, a U.K.-based group of investors led by a former colleague of Mikhail Khodorkovsky offered to pay Yukos' $3.4 billion tax bill and bail out the former chief executive in exchange for Khodorkovsky's stake.

"Financial investors are prepared to buy Khodorkovsky's and his partners' shares in Yukos, currently under arrest by a Moscow court, in order to provide bail for Khodorkovsky," said the July 21 letter, a copy of which was obtained by Dow Jones Newswires.

In the letter, the investors said they could pay the money directly to "Russia's federal budget." The letter was addressed to President Vladimir Putin and signed by George Miller, who identifies himself as a representative of a group of unspecified investors.

Yukos is doing everything it can to continue dialogue with the government, the company’s CEO Steven Theede told a press conference Thursday.

But so far Russia’s largest oil producer and exporter has failed to reach a compromise over the company’s tax debt on its own.

"In the past six weeks we have sent 11 letters, but have not received a single reply." But the company intends to continue in its attempts to resolve the issue, Theede said Thursday.


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Surgutneftegas May Buy Yuganskneftegaz??

Russia’s fourth largest oil company Surgutneftegaz is seen as the main contender to buy Yukos’ main production asset, Yuganskneftegaz, Britain’s Financial Times newspaper reported on Thursday, July 22. The newspaper quoted a number of market analysts who believe that Surgutneftegaz is an “obvious candidate” with political support.

Surgutneftegaz is a perfect buyer for Yuganskneftegaz for several reasons, the newspaper wrote. First of all it words in the same region as Yukos’ subsidiary and so it would be easy to merge the assets of two companies. Secondly, Surgut has enough free cash to pay for the purchase without even attracting loans from banks. Thirdly, a purchase of Yukos’ main asset by another private company would help to assuage the investors of fears that the government plans to start a de-privatization process.

MosNews wrote earlier that Yukos announced government plans to put its major production asset, Yuganskneftegaz, up for sale. The price tag put on the asset by the authorities is $1.75 billion. Yukos claims the assets of Yuganskneftegaz were valued at $2 billion as of May 2004, and the proven and probable reserves of this subsidiary amount to another $30.4 billion.


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Bailiffs Impound $200M More of Yukos Funds

Court bailiffs seized more Yukos accounts, worth $200 million, on Wednesday, Chief Executive Officer Steven Theede announced at a press conference Thursday, the Russian Information Agency Novosti reports.

The company’s capabilities of financing its nearly $7 billion tax debt have been limited by arrests of its main stock and by the recent seizing of its bank accounts, Novosti quoted Theede as saying.

He added that the company cannot attract investment from foreign markets as a result, and can rely only on corporate loans.

Earlier at the conference Theede said the company most likely faces bankruptcy if it cannot raise the money soon.

“The company has been able to cover its cash deficit in July and may not be able to continue this beyond, at the latest, mid-August,” Reuters quoted a Yukos statement as saying.

Should the efforts to raise the money prove unsuccessful, the statement said, “in the present circumstances, the management of the company will be compelled to announce the bankruptcy of Russia’s largest oil company.”




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Yukos to Pay $1.3Bln by End of July, Bankruptcy Possible

On Thursday, July 22, Russian oil major Yukos called a news conference and released an official statement commenting on the current financial situation at the company.

Yukos CEO Steven Theedy told reporters that the company will pay $1.3 billion of tax debt payments before the end of the month.

The official press release published on the company’s website states that the company’s management is “currently making every effort to raise additional funds in order to repay, as soon as possible, the tax liability and to finance current operations. However, should those efforts prove unsuccessful and Yuganskneftegas is sold, in the present circumstances, the management of the Company would be compelled to announce the bankruptcy of Russia’s largest oil company”.

The price of Yukos shares fell by 12 percent within the first few minutes of the announcement of a possible bankruptcy.

Such an announcement was expected by the market. In the wake of the press conference, Reuters news service quoted an expert from Aton Capital brokerage firm, who said: “The speculation is that Yukos will declare bankruptcy in order to get better control over the asset liquidation process and to prevent its key assets being sold for cents on the dollar through direct sales by the bailiff service.”

It is unclear at the moment when exactly Yukos plans to announce its bankruptcy and whether it will be able to seize control over the sale of Yuganskneftegaz from the authorities before it is too late.

In addition to making financial announcements, the official statement by Yukos also reported about an appeal that the company filed to the Russian authorities. Among the appeal’s addressees were the Russian government, Justice Ministry, Court Bailiffs’ Service, Federal Property Agency and a number of other ministries. Yukos has asked the authorities not to allow the company’s bankruptcy. In its appeal the oil major offered the authorities to continue discussing possible restructuring of the company’s tax debt and asked that the government prevents a confiscation of Yukos’ production assets.


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Yukos warns it will declare bankruptcy if prize asset is sold

Embattled Russian oil giant Yukos oil giant is warning it will declare bankruptcy if the government sells its prize asset to cover a multi-billion-dollar tax bill.

"The company management is currently making every effort to raise additional funds in order to repay, as soon as possible, the tax liability and finance current operations," Yukos said in a statement.

"However, should those efforts prove unsuccessful and Yukanskneftegas is sold ... the management of the company would be compelled to announce the bankruptcy of Russia's largest oil company."

Yukos shares crashed 11.6 percent on the benchmark RTS index within minutes of the announcement.

On Tuesday, Russian authorities said they intended to sell Yukanskneftegaz, a subsidiary that produces 62 percent of the firm's oil and holds 58 percent of its reserves.

The sale of the subsidiary is aimed at paying 3.4 billion dollars (2.8 billion euros) in underpaid taxes that the government has filed against Yukos for 2000.

Analysts value Yukanskneftegaz at at around 15 billion dollars and Yukos this week released a valuation that said the subsidiary's reserves were worth 30.4 billion dollars.

The oil giant, which accounts for some 20 percent of Russia's oil production, has not been able to pay the tax bill because of a court-ordered freeze on its accounts and assets.

It has repeatedly offered to negotiate a restructuring of the debt with the government, to no avail.

Observers say the troubles of the firm are linked to those of its founder Mikhail Khodorkovsky who is standing trial on fraud and tax evasion charges.

Many see the case against the tycoon and his firm as Kremlin payback for the billionaire's political ambitions. Authorities say they are simply fighting corruption.


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Yukos founder wants govt rep to head board amid bankruptcy warning

Yukos founder Mikhail Khodorkovsky said a government representative should head the board of the oil giant, which warned it would declare bankruptcy within a month unless its huge tax bill was restructured.

"In today's situation I think it preferable to see a representative of the government" as chairman of the board, Vasily Shakhnovsky, a top Yukos shareholder, said Thursday on Moscow Echo radio, on behalf of Russia's richest man who is jailed pending the outcome of his fraud and tax evasion trial.

The offer was the latest in a series of proposals that Russia's largest oil producer has made to the state in order to resolve a tax bill that could eventually come to eight billion dollars.

Analysts say the government has ignored all previous offers because it intends to disassemble the company as payback for Khodorkovsky's political ambitions and a warning to other tycoons to stay out of politics.

Yukos meanwhile said it would be forced to declare bankruptcy within weeks if a court did not lift a freeze on its accounts and assets and if the government goes ahead with its plans to sell its prized asset, the Yuganskneftegas production subsidiary.

"The next three weeks will be very critical for the company's future" because "we will run out of cash and we will not be able to meet our export obligations sometime in the first half of August," chief executive officer Steven Theede told reporters.

Yukos faces a 3.4-billion-dollar (2.8-billion-euro) tax bill for 2000, which it has not been able to pay because of a court-ordered freeze on its accounts and assets.

In all, the tax ministry could end up charging the company with some eight billion dollars in unpaid taxes for 2000-2003, analysts say.

Earlier this week Russian authorities said they would sell Yuganskneftegas -- Yukos's backbone that produces 62 percent of the company's oil and holds 58 percent of its reserves -- to raise cash for the outstanding bill.

In a desperate bid to hold on to its crown jewel, Yukos said it would file for bankruptcy if it were not allowed to raise cash to pay the bill.

"The company management is currently making every effort to raise additional funds in order to repay, as soon as possible, the tax liability and finance current operations," Yukos said in a statement.

"However, should those efforts prove unsuccessful and Yuganskneftegas is sold ... the management of the company would be compelled to announce the bankruptcy of Russia's largest oil company."

"The company is fully capable of repaying the outstanding tax obligations within a reasonable period of time, provided it retains its main production units and can dispose of other assets," the Yukos statement said.

Yukos shares crashed 11.6 percent on the benchmark RTS index within minutes of the announcement.

Analysts said declaring bankruptcy is the oil giant's only hope of stopping the dismantling of a company that last year was an investor darling and whose capitalization was three times today's levels.

"Bankruptcy is their only chance of slowing down the uncontrolled process of an asset firesale," said Steven Dashevsky, head of research at Aton Capital. "During bankruptcy proceedings, all other actions against the company are suspended."

But observers warned that the plan may come to naught -- a company must apply to the courts to be declared insolvent and Yukos has had no luck in the courts during its months-long dispute with the tax ministry.

Theede said Yukos oil will remain on the market through August, the period for which it has pre-paid transport costs to Russia's Transneft pipeline monopoly.

But "if we can't pay pipeline tariffs in September, Yukos crude oil won't be moving through pipelines," he said.

He also warned such a scenario could affect world oil prices.

"Yukos is the first producer of oil in Russia and 75 percent of production is exported, so there will probably be some impact" on world markets, he said.

Yukos produced 589 million barrels of oil in 2003.

Analysts say that Tuesday's announcement that Yuganskneftegas will be sold reveals the government's true intentions toward Yukos, citing as proof the market value of the subsidiary of around 15 billion dollars -- five times more than Yukos's current tax bill.


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Yukos May Go Bankrupt, Has Three Weeks of Cash

OAO Yukos Oil Co., Russia's biggest oil exporter, said it will go bankrupt if the government carries out plans to sell the company's main unit, after a freeze on its assets left Yukos with enough cash to produce oil for three more weeks.
Yukos shares tumbled as much as 14 percent after Chief Executive Officer Steven Theede said the company may run out of money by mid-August and hasn't been able to begin a dialogue with the government. Bailiffs have frozen accounts that handle $900 million a month of Yukos's revenue, he said in Moscow.

``Yukos is a single-country company, and to be successful, it needs to get along with the government,'' Theede said at a press conference. ``If we can't, we don't have a bright future.''

The yearlong probe into Yukos and its biggest shareholder, Mikhail Khodorkovsky, increased the perception of risk regarding Russia, leading investors to pull billions of dollars from the country. Crude oil futures rose in London amid concern about reduced shipments from Russia, the world's second-biggest oil supplier after Saudi Arabia.

Brent crude oil for September settlement rose 22 cents, or 0.6 percent, to $37.38 a barrel at 12:24 a.m. on London's International Petroleum Exchange, amid concern that oil supplies from Russia, the world's second-biggest exporter, may falter if Yukos runs out of cash next month.

`Yukos Is Alone'

``Yukos is clearly alone -- the company has no one to speak to in the government and that makes finding a solution impossible,'' said Jean-Louis Tauvy, who manages $200 million in Russian stocks including Yukos shares at Atria Advisors Ltd. in Moscow. ``Their destiny is in the government's hands.''

The company sent 11 letters to the government and to President Vladimir Putin's administration over the past six weeks, without receiving any reply, Theede said.

Putin said June 17 it wasn't in Russia's interest to bankrupt Yukos. He hasn't commented on the company's situation since.

Yukos's biggest owner Khodorkovsky, 41, who was arrested on Oct. 25 and has been in jail ever since, is facing trial on tax evasion and fraud charges he denies as politically motivated.

Khodorkovsky and his allies at Yukos supported parties that opposed Putin, obstructed government efforts to raise taxes on oil producers and sought to build private oil pipelines, breaking the state's monopoly.

Seizing Production

Russia officials on Tuesday said they will seize and sell OAO Yuganskneftegaz, which pumps as much oil as Indonesia. Yugansk extracts 1 million barrels of oil a day, or 60 percent of Yukos's production, and is valued at about $20 billion by Goldman Sachs Group Inc.

``A loss of Yugansk will be a very serious blow,'' Theede said. ``If Yugansk is lost, we'll have to re-access where we are in the overall supply and demand balance.''

Yukos shares fell 8.8 percent to 155.53 as of 3:24 p.m. in Moscow. The stock's price has dropped by a third in the past three days, wiping out about $6.9 billion of the company's market value.

``Investors can't really see the state collaborating in any way -- it is really unclear what their motives are and what they are trying to achieve,'' said Aivaras Abromavicius, who manages $600 million in East European assets including Yukos shares at East Capital Asset Management in Stockholm.

Bankruptcy Possible

Yukos Chief Financial Officer Bruce Misamore on a July 6 conference call with investors said bankruptcy ``may be an option'' to protect Yukos. The company failed to meet a July 7 deadline to pay $3.4 billion in taxes from 2000, the largest tax bill in Russian history.

Payment for oil shipments through pipelines has been prepaid through August, Misamore said today.

Yukos may be left with nothing if the government sells Yuganskneftegaz for less than its true value, Goldman Sachs said in a report to investors late Tuesday.

``The Justice Ministry has no obligation to sell Yuganskneftegaz at an auction, therefore there is no guarantee that Yukos will get a fair value for it,'' Goldman said. Yukos may be left ``with assets worth between zero and $12 a share.''

Misamore said today the company is not yet bankrupt and wouldn't speculate on when that might occur.

Yukos agreed to lend as much as $449 million to Yugansk and another fully owned unit OAO Samaraneftegaz, according to the units' filings to Russia's Federal Service of Financial Markets.

Misamore said the loans make ``nothing unusual'' and are meant to support the production units' working capital.

Creditors Nervous

The company is ``constantly'' talking to the creditors for a $1 billion loan organized by Societe Generale SA last year, Misamore said.

``They are supportive, but very, very nervous,'' he said.

Yukos has paid $300 million on the tax bill. The company has said it plans to pay a total of at least $1.3 billion this month.

The company is generating about $1.8 billion a month in revenue and needs to pay out about $1.7 billion a month to fund operations, Yukos said.

``Contrary to the statements of some Russian government officials, the company has no cash reserves anywhere within the consolidated group with which to pay the full amount of the tax bill,'' Yukos said in its statement.

Some investors had said Yukos might seek to enter bankruptcy to prevent the state from seizing its assets.

``One option which Yukos might now consider is that of voluntary bankruptcy in order to take control of the asset disposal process and ensure some modicum of fair value for its shareholders,'' United Financial Group, the Moscow unit of Deutsche Bank AG, said in a note to investors Tuesday.

If a Yukos bankruptcy petition was upheld by a Russian arbitration court, that could delay sales of the company's assets while a list of creditors was drafted, according to Katerina Kazachenko, head of the legal department at Aton brokerage.

Shareholders

Of the six biggest shareholders of Group Menatep, which owns 53 percent of Yukos, two -- Khodorkovsky and Platon Lebedev -- are sitting in a Moscow jail during their trial. Three Menatep shareholders -- Leonid Nevzlin, Mikhail Brudno and Vladimir Dubov -- fled to Israel and one, Vasily Shakhnovsky, was sentenced for personal income tax evasion and then freed by a Moscow court.

The authorities presented Yukos with the largest tax bill in Russian history, ruling that the company illegally obtained tax breaks in the country's provinces. Local tax breaks have enabled Yukos's rivals OAO Sibneft and TNK-BP to pay about 7 percent in income taxes, compared with Russia's statutory rate of 24 percent.

The Organization of Economic Cooperation and Development on July 7 called the Yukos case an example of ``arbitrary'' use of state power and a ``highly selective'' legal attack.

The fall of Yukos would ``negatively affect the investment climate'' in Russia, said Yukos board chairman Viktor Gerashchenko, a former central bank head.

``Most investors aren't ready to write off Russia because of Yukos,'' said Steven Dashevsky, ahead of research at Moscow brokerage Aton. ``But for many, the Yukos case is a litmus test.''


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