Time runs out for Russia's Yukos amid prosecutor's hardened tone

Time was running out for Yukos as prosecutors hardened their tone against the oil giant ahead of a crucial deadline that could see the government seize the assets of Russia's top oil producer.

General Prosecutor Vladimir Ustinov hinted that further tax claims could be filed against Yukos, in addition to the 3.4 billion in confirmed by the courts for 2000 and a similar amount claimed for 2001.


"There are also the years of 2002 and 2003," Ustinov said in televised comments. "This affair is like a snowball. It has a beginning, but it's very difficult to see the end."


"The scale of the theft, abuse and underpayment of taxes is so huge that it could not fit into one case," he said.


They were ominous comments for Yukos, which has until the end of business on Wednesday to pay the 3.4 billion-dollar validated claim or face having its assets seized by the tax ministry.


Yukos -- which has been under fire after the arrest and jailing pending trial of its main owner Mikhail Khodorkovsky in what is regarded as a political witchhunt -- has said that it cannot pay the claim because the courts have placed a freeze on its bank accounts and assets.


As of Thursday, "some action could be taken against our assets," Yukos's chief financial officer Bruce Misamore admitted to investors during a conference call late Tuesday.


Unless a negotiated solution is reached, the government will have "the full right to come in and try to realize the value of assets in order to pay the tax bill. This could be sale of asssets conducted by the bailiffs ... either through an auction or direct sales," he said.


The firm said Monday that it received another blow when a syndicate of Western banks led by France's Societe Generale had declared it in default of a one billion-dollar loan, though the group did not demand immediate payment on the debt.


Investors had been hoping that the firm could negotiate a settlement with the government, but that prospect looked increasingly unlikely after Misamore admitted in a newspaper interview that talks had abruptly broken down last week.


"I really don't know (why they broke down) it was a really big surprise to us," he said late Tuesday. "We have tried to reinitiate discussions," but so far unsuccessfully.


Hope for a negotiated settlement flickered briefly after a deputy finance minister, Sergei Shatalov, said a restructuring or deferment of the debt was possible.


Shares in Yukos jumped 16 percent on the RTS stock exchange within minutes after Shatalov's comments. But the statement from the general prosecutor deflated the optimism and Yukos ended the day at 6.85 dollars on the RTS, less than half of its high of 16 dollars prior to the arrest of Khodorkovsky.


The company's fate has become closely intertwined with that of Khodorkovsky, its founder, largest shareholder and Russia's richest man who is believed to have made an enemy of President Vladimir Putin by financing opposition parties.


The 41-year-old faces a 10-year jail sentence for fraud, tax evasion and embezzlement and his next trial hearing is scheduled for July 12.


Yukos's Misamore echoed accusations that the company -- which pumps almost one in every five barrels of crude in the world's number two oil exporter after Saudi Arabia -- was being hounded because of its former chief.


"There is just one person in this entire country who must be held responsible: Mr. Putin," the Financial Times quoted Misamore as saying. "He started the problem and only he can solve it."


The slide towards ruin of one of the best-managed and profitable companies in Russia has raised concern about the impact on the emerging Russian economy and its key oil sector, provoking alarm among foreign and domestic investors.

The Wall Street Journal reported Tuesday that the banks led by Societe Generale had warned the Russian government that a Yukos bankruptcy would undermine foreign investment and make foreign banks very wary of lending to Russian companies in the future.


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