Asset stripping

The Moscow authorities seem to be bent on finding the most disproportionate means of getting Yukos to pay its alleged tax arrears. Yesterday the justice ministry announced a forced sale of the oil company's biggest production unit, Yuganskneftegas, to cover the bill. The "fire sale" of this major unit would gut Yukos, destroy value for shareholders and further undermine foreign investors' confidence in Russia. Whatever one thinks of the authorities' separate prosecution of Mikhail Khodorkovsky, Yukos's main shareholder, on charges of tax evasion and fraud - and there is plenty to question in his past - their parallel dismemberment of his company would clearly go against the national interest.

Though most Russian conspiracy theories are to be resisted, it is hard not to see a government desire to dismantle Yukos in the way the authorities have repeatedly spurned the company's various offers to settle its tax arrears in a manner that would allow it to stay in business. With its assets and bank accounts frozen, Yukos has vainly proposed using its future cashflow over a number of years to pay its 2000 tax bill of $3.4bn. From his jail cell, Mr Khodorkovsky has also offered his own holding in the company to settle the corporate tax bill. But the authorities would not buy this either. Instead, they have gone for Yuganskneftegas, the largest of Yukos's three production units which, pumping over 1m barrels a day, accounts for 60 per cent of the group's output.
Yukos also offered to use its 35 per cent stake in Sibneft as payment. This stake, however, has now been frozen as the result of court action by Roman Abramovich, Sibneft's controlling shareholder. So it was perhaps logical that the authorities should seek to get their hands on other Yukos assets. But in this case, it is surprising that they should not have gone after one of the company's two other production units. Either of these would have been large enough to settle the tax bill, but small enough as a proportion of total assets for its sale not to destroy Yukos as a going concern.
Size is important in the oil business, in Russia as elsewhere, given the scale of today's oil projects. Of course, it is possible Yuganskneftegas might find its way back to a Yukos reconstituted under different owners. Something not totally dissimilar happened a few years ago with assets in a company called Sidanco which eventually became the foundation of BP's subsequent joint Russian venture with TNK. But BP found itself taken for a very unpleasant ride in the interim, and the same could now happen with foreign minority shareholders in Yukos.
Russia contested foreign oil companies' demands for "production sharing arrangements" to ring-fence their investment against political or fiscal changes. Moscow claimed that while such PSAs might be appropriate in developing countries, they were not in a stable country such as Russia. How ironic such claims now seem.
 
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