Khodorkovsky trial resumes

Russian oil magnate Mikhail Khodorkovsky's trial for fraud and tax evasion resumes today after a one-week break, amid fast-paced developments in the battle by his oil firm YUKOS to survive.

Khodorkovsky and his business partner Platon Lebedev are charged with causing damage of $1 billion (55 million pounds) to the state and face up to 10 years in prison.

Analysts believe the two have been singled out for harsh treatment, while other "oligarchs" who profited from shady 1990s privatisations walk free, because Khodorkovsky posed a political challenge to President Vladimir Putin.

The trial, which began in mid-June, has moved at a snail's pace: Khodorkovsky, caged in the courtroom, has been seen reading a history book while prosecutor Dmitry Shokhin ploughs through 400 volumes of case evidence.

Defence lawyers say it could be several weeks before serious cross-examination can begin.

Russia's largest oil exporter may not have that much time, however.

YUKOS must pay $3.4 billion in back taxes by the end of August, but said it could not do so because it has run out of cash, and its bank accounts and assets are frozen.

Daily swings of more than 20 percent in YUKOS's share price have become commonplace as the authorities step up their assault, while speculators bet heavily on whether or not the company can survive as a going concern.

BREAK-UP LOOMS

Many analysts believe the state wants to dismantle YUKOS as soon as the tax payment deadline expires, by selling its key Siberian oil unit, Yugansk, to state energy firms to cover the back-tax bill.

Menatep, the vehicle of core YUKOS owners including Khodorkovsky, on Wednesday declared YUKOS in default on a $1.6 billion loan -- a signal it is trying to get back some money before YUKOS falls into the hands of the state.

"By declaring default, Menatep is pushing the Kremlin towards a choice between an oil export halt and a chance for Menatep to recoup money," commented Maxim Shein at BrokerCreditService.

Fears that Russia, the world's second-largest oil exporter, may cut its supplies at a time of rising global demand have helped to push oil prices to a record high this week.

But analysts predict that, even if the state is determined to dismantle YUKOS, it would try to avoid export disruptions.

"The halting of oil exports is the nuclear option in YUKOS's hands that it can use against authorities, as it could send the global oil market into a frenzy and damage Russia's reputation as a reliable supplier," said Aton brokerage's Dmitry Lukashov.

Russia exports more than five million barrels per day of oil, of which one-fifth is supplied by YUKOS.

WINNER TAKES ALL

Aton said that, whatever shock statements both sides in the conflict may release in the next few weeks, investors should focus on the end-August deadline for YUKOS to pay taxes.

"Without sufficient funds to pay the bill, YUKOS is likely to face the sale of core assets," Lukashov said.

Stanislav Belkovsky, a political analyst seen as a close ally of Kremlin hardliners leading the attack on YUKOS, predicted the same scenario.

He said YUKOS's most lucrative assets would end up in the hands of state energy firms Rosneft and Gazprom, while Khodorkovsky would be sentenced to two or three years in jail.

"Once its most valuable assets have been sold off, YUKOS will still legally exist, but it will be nothing but an empty shell," Belkovsky said in an opinion piece in the Moscow Times.


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