Russia Hints at YUKOS Reprieve

Russia's government said on Tuesday it could give beleaguered oil giant YUKOS more time to pay off a huge bill for back taxes, sending the company's share price higher.

The possible reprieve follows growing fears that a bill for $3.4 billion in tax arrears, which must be paid by Wednesday night, could push YUKOS into bankruptcy and turn investors away from Russia.


The government of Germany, one of Russia's most important economic partners, said Chancellor Gerhard Schroeder would not raise the matter in Moscow talks this week with Kremlin leader Vladimir Putin. The chanellor's spokesman had earlier said Berlin would "carefully monitor" developments.


The affair is widely seen as being orchestrated by the Kremlin to crush the political ambitions of the major YUKOS shareholder, billionaire Mikhail Khodorkovsky.


Khodorkovsky remains in jail while he stands trial on charges of tax evasion and fraud.


Russia's Deputy Finance Ministry Sergei Shatalov told reporters that YUKOS could get more time to pay.


"To do this we need a request from YUKOS," he said "So far we haven't had one ... I cannot rule out that a decision on restructuring could be taken, because this is no ordinary case."


His comments sent YUKOS shares, which have been tumbling for months, up by as much as 23 percent. By 5:40 a.m. EDT they were quoted up a net 7.5 percent at 200.55 roubles on the MICEX exchange.


President Vladimir Putin has pledged not to destroy YUKOS, which accounts for nearly a fifth of Russia's oil output but its future looked bleak as courts have frozen the company's assets leaving it without the funds to honor the back-tax demands.


GERMANY CONCERNED


Analysts warn that the feud with YUKOS has raised doubts among investors about the political risks of putting their money into Russia despite the enticing opportunities in a country awash with natural resources.


And that in turn could slow Putin's stated goal of doubling the size of the economy in a decade.


The German government spokesman said the issue was not on the agenda of talks between Schroeder and the German-speaking Putin. The two men are close and meet frequently.


Schroeder's spokesman earlier denied a local newspaper report that the chancellor had been asked by two big German banks to lobby on their behalf and make sure YUKOS is able to repay loans from them. He said Germany would "carefully monitor" developments at YUKOS.


Deutsche Bank and Commerzbank are part of a consortium which has declared YUKOS in default on a $1 billion loan. Both banks declined comment.


Banking sources in London said the default notice was aimed less at beleaguered YUKOS than at the Kremlin.


Default brings with it the threat of undermining the ability of other Russian companies, flocking to the West to raise money, to borrow on international markets.


"Is the Russian government going to take action that will result in banks losing money on YUKOS? It will affect banks' attitudes on lending to Russia and there's a huge ongoing financing requirement," one Western banking source said.

Fears that YUKOS's oil production could be hit have been a factor pushing up world oil prices.

YUKOS sources told Reuters that the company may be forced to cut some exports unless it can raise the cash to pay for transport.

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