Russian government to sell prized Yukos asset

Russian authorities said they intended to sell Yukos's main production subsidiary in a move that would strip the oil giant of its crown jewel.

In a statement issued on Tuesday, the justice ministry said court bailiffs were working on a valuation of Yukanskneftegaz, which accounts for nearly two thirds of production at the largest Russian oil group.

"After valuation, the Yukanskneftegaz shares will be handed over to an organization that specializes in sales," said a statement from the ministry that oversees court bailiffs.

Yukanskneftegaz manages 26 oil fields in western Siberia and is thought to hold 10 billion of the group's 17 billion barrels of oil reserves, according to a recent research note by the UFG brokerage.

In 2002, it accounted for 363 million barrels of oil of the total 589 million produced by Yukos, said UFG, which valued Yukanskneftegaz at 15.6 billion dollars (12.6 billion euros).

Yukos said a valuation performed by an independent firm valued the subsidiary's reserves at 30.4 billion dollars.

Yukos shares dropped 20 percent on the benchmark RTS index following the announcement as analysts warned the government was likely to sell the prized production company for a fraction of its worth. It ended the day down 13.38 percent at 6.8 dollars, nearly halved from its 16-dollar high last October, before the legal troubles began.

"This is the worst-case scenario," said Steven Dashevsky, head of research at Aton Capital. "Yukos is now going to experience privatization in reverse, seeing its prized asset being sold at likely pennies on the dollar."

An unnamed Yukos official confirmed such fears to the Interfax news agency, saying that "according to some information, the value of Yukanskneftegaz is determined at 1.75 billion dollars."

"According to information that we have, the sale will not take place at an auction, but via a direct agreement with a buyer," Interfax quoted the official as saying.

If the predictions turn out to be true, it will be an ironic turn of events for the oil firm, which was bought by Mikhail Khodorkovsky on the cheap at a disputed auction during controversial Russian privatizations in the 1990s.

Khodorkovsky, today Russia's richest man, bought Yukos for just over 350 million dollars at an auction that some observers said was fixed. He then built it into Russia's largest oil producer and an investor darling, with Western-trained managers and business methods.

But last year, Khodorkovsky and his firm became the object of a wide-scale investigation by prosecutors that many observers said was backed by the Kremlin as a sign of its disapproval of the tycoon's political ambitions.

Khodorkovsky had financed opposition parties ahead of parliamentary elections and had openly criticized the government of President Vladimir Putin.

He was arrested in October and jailed pending trial on fraud and tax evasion charges.

Meanwhile, the tax ministry filed a 3.4-billion-dollar tax claim against Yukos, accusing the oil giant of underpaying taxes.

Yukos says it did not break the law but had used legal schemes to minimize its bill to the government.

The company could face a total tax bill of eight billion dollars. Unable to make payments because of a court-ordered freeze on its accounts and assets, the company has warned that it may have to declare bankruptcy.

It has on several occasions appealed to the government -- to no avail -- with proposals to restructure the debt.

"Further development of the situation ... depends exclusively on the goodwill of the government," Khodorkovsky said in a statement Tuesday.

Court bailiffs have been making an inventory of Yukos assets for several weeks and on Tuesday said they had withdrawn 181 million dollars from Yukos accounts toward the tax bill.

Analysts say that the state intends to disassemble Yukos, which pumps nearly 20 percent of Russia's oil production, and sell it to state-approved interests as a lesson to tycoons to stay out of politics.

In addition to Yukanskneftegaz, bailiffs have also seized assets of the two other top subsidiaries, Samaraneftegaz and Tomskneft, which in 2003 accounted for 35 percent of Yukos's production.


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