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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