Yukos May Start to Shut Oil Production Next Week

OAO Yukos Oil Co., Russia's biggest oil exporter, said production may stop from some fields as early as next week after its bank accounts were frozen because of a 99.4 billion-ruble ($3.4 billion) tax claim.

Russian crude supplies would slow to a world market where prices have soared 28 percent in the past year, to $35.90 a barrel in London. Yukos plans to pump 1.8 million barrels a day this year, about equal to Iraqi shipments into the Persian Gulf. Yukos shares fell 18 percent in Moscow earlier today.

While the government ``may have the legal right to do this, the commercial consequences of what they're trying to do will be severe -- the loss of billions of dollars of foreign exchange revenue for the Russian economy and a driving up of the oil price,'' said Pieter Bruinstroop, who helps manage $2.3 billion of stocks at APS Asset Management Ltd. in Singapore.

Yukos spokesman Alexander Shadrin in a telephone interview from Moscow said the bank freeze limits the company's ability to pay taxes, creditors, contractors and wages. The fate of Yukos, born out of state asset sales that made Mikhail Khodorkovsky into Russia's richest man, hinges on the government's response to a Yukos request to spread the tax bill out over time because it can't meet the demand in full now.

President Vladimir Putin said June 17 he opposes bankrupting Yukos. He and Prime Minister Mikhail Fradkov met yesterday with 19 businessmen, including the country's third-richest man Viktor Vekselberg, fifth-richest Vladimir Potanin and sixth-richest Mikhail Fridman, in the Kremlin to discuss relations between businessmen and the government. Yukos wasn't discussed.

Clampdown

Yukos shares fell as much as 37.41 rubles and were down 12.41 rubles at 198 rubles as of 1:19 p.m. in Moscow. They reached 163.55 on June 16, the lowest since January 2002.

Putin's government is targeting Yukos and Khodorkovsky, 41, as part of a clampdown on billionaires who built their wealth under the previous president, Boris Yeltsin. The attack has raised concerns about protection of property rights in Russia.

``The main concern is whether Yukos is a one-off affair or part of a systematic approach,'' said Christof Ruehl, chief economist of the World Bank's Russia office. ``As long as this question remains unanswered, there's a problem for the investment climate.''

Court bailiffs that visited Yukos yesterday gave five days starting June 30 for Yukos to pay the claim ``voluntarily, before they arrest cash at the accounts,'' Shadrin said.

Management is concerned the freeze on bank accounts may lead the company to miss its goal of boosting output 11 percent this year. Moscow-based Yukos, which produces about a fifth of Russia's output, in February said it planned to produce 1.8 million barrels a day this year. First-quarter exports were 1.1 million barrels a day, 64 percent of Yukos's production.

New Claim

Interfax news agency yesterday cited an unidentified tax official as saying Yukos may face another 98 billion-ruble bill for obligations not paid in 2001. Moscow-based Yukos didn't receive any new claims from the Tax Ministry, Shadrin said.

``It appears the government wants to shut this company down and potentially take other assets away,'' said Tim McCarthy, who manages about $500 million in Russian assets, including Yukos shares, at Moscow-based Troika Dialog Asset Management.

Yukos Chairman Viktor Gerashchenko told reporters today that he sought talks yesterday with the Kremlin, Finance Minister Alexei Kudrin and prime minister Fradkov, and received no reply.

Assets Frozen

The government and Yukos are negotiating the ways to avoid bankrupting the company, Kommersant newspapers reported, without citing anybody.

In April, Yukos was banned by a Moscow court from selling any assets. The same month, Yukos said it may default on $2.6 billion in loans after creditors, including Societe Generale SA, Citigroup Inc. and Group Menatep, said they might seize some revenue to cover interest payments.

Finance minister Kudrin has told creditors that Yukos won't be bankrupted, Gerashchenko said.

Yukos former chief executive Khodorkovsky is the biggest shareholder in Menatep, which owns 44 percent of Yukos. He is being held on charges of fraud and tax evasion without bail at Matrosskaya Tishina prison in Moscow. He denies the charges as politically motivated.

Avoiding Yukos Issue

At the meeting with Putin and Fradkov, the Yukos issue wasn't raised, said Alexei Mordashov, Russia's ninth-richest man, who controls steelmaker Severstal Group.

Tax claims against Yukos ``weren't discussed because this issue isn't of systemic character,'' Mordashov said yesterday. ``Putin didn't mention Yukos. He talked about the social responsibility of Russia's businessmen.''

Bailiffs yesterday declined to accept Yukos's 35 percent stake in OAO Sibneft, worth $4.2 billion, as payment for its debt, Gerashchenko said, a decision he called ``stupidity.''

Beilin in a statement yesterday urged the government to take a ``serious and responsible approach to the timescale of the demand'' regarding the 2000 obligation after a five-day period for voluntary payment lapses.

On June 29 Yukos lost a court case with the Tax Ministry and must pay the claim as back taxes and fines from 2000. The company is considering whether to appeal to the highest Russian court, though such a move wouldn't delay enforcement of the decision.

Khodorkovsky's trial has been postponed until July 12. If convicted, the billionaire faces as long as 10 years in jail.


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