PACE representative examining Khodorkovsky-Lebedev case

Sabine Leutheusser-Schnarrenberger, special representative of the Parliamentary Assembly of the Council of Europe (PACE) and a member of the PACE Committee on Legal Affairs and Human Rights, thinks she may not be able to clarify some questions she has about the case of Mikhail Khodorkovsky and Platon Lebedev.
Leutheusser-Schnarrenberger is drafting a report on possible violations of human rights in the case.
On Ekho Moskvy radio on Thursday, she said that during her second Moscow visit related to the case, she was trying to clarify certain contradictions she sees in the case. She received plenty of materials and will assess them, but she has the impression that the contradictions cannot be clarified yet, she said.

MOSCOW. Sept 30
(from : Interfax)

Russian Authorities Do Not Allow PACE Envoy to Meet Khodorkovsky, Lebedev

Meshchansky court of Moscow denied a representative of the Parliamentary Assembly of the Council of Europe (PACE) to meet with former head of Yukos oil company, Mikhail Khodorkovsky, and head of Menatep group, Platon Lebedev, who are currently in custody.
Sabine Leutheusser-Schnarrenberger, a member of the Human Rights Committee of the Council of Europe, attended Tuesday hearings on Khodorkovsky’ and Lebedev’s case, Russian Information Agency Novosti reported.
This is the second time when she was denied to meet with jailed Yukos shareholders. On May 25, the court issued the same decision on the grounds that a PACE representative is neither a lawyer, relative, religious figure or consul — the close circle that is allowed access to suspects.
Khodorkovsky’s lawyer, Karina Moskalenko, made a request to permit the defendants to hold a conversation with a PACE representative during a lunch break.
Leutheusser-Schnarrenberger claimed she intends to present a report on this case at the Human Rights Committee in November. It will be considered by PACE in January 2005, she said. The PACE representative did not state whether there are human rights violations in the case of Khodorkovsky and Lebedev. But she expressed surprise that they were put behind the bars in the courtroom, the agency reported.
She said it is possible to hold a person suspected of economic crimes behind the bars in Europe only if he or she poses threat to the others.

From: Moscow News

New webmaster

Hello, I'm the new webmaster !
Introduction will be short, as I don't speak English as well as I would like (I'm French).
I just want to say that I'm really impressed by the great work "old" webmaster have done.
I'll do my best.

Thank you for beeing with us.

New Webmaster

As from today the MBKSociety has a new webmaster. I am unable to fulfil this role properly (as you are no doubt aware by lack of updates) so I am pleased that someone is able to carry on updating this site. I am also very proud to be able to pass on webmaster-ship to someone extremely competent and intelligent who will, no doubt, be a greater asset to this site and this cause than I ever was. I will leave all introductions, should they wish to make any, to the new webmaster.

So from the Old Free MBK, good-bye and thankyou for your support.

Court rejects med exam for Lebedev

A Moscow court has rejected a plea by former magnate Platon Lebedev for a medical exam during his fraud trial, Interfax news agency said Wednesday.

Lebedev, former head of the Menatep business group and a close business associate of former Yukos oil Chief Executive Officer Mikhail Khodorkovsky, is on trial on fraud and tax evasion charges. His lawyers have filed a complaint that his health was a matter of serious concern and he needed high quality medical assistance.

However, the Moscow City Court Wednesday rejected the complaint, the news agency said.

It was the second time such an appeal by Lebedev has been rejected. In August the Meshchansky Court in Moscow rejected an earlier plea for an independent medical examination.

(From : Washington Time - United Press International)

Khodorkovsky Denounces Reports of Yukos Mafia Ties

In a short statement published on Mikhail Khodorkovsky’s Web-site the former Yukos CEO denounced the latest attack on the oil company. The statement appears to be Khodorkovsky’s response to a documentary on Yukos’ alleged ties with ethnic criminal groups to be showed on NTV this Sunday.

“Even facing trial I cannot ignore libel against me and an attempt to shift the blame for rampant crime on someone else,” Khodorkovsky said in a statement.

“I joined Yukos after it was privatized in 1995-1996. In just one year we managed to purge the former state-owned company of total domination by gangsters, including those of Chechen origin. To that end all that had to be done was to introduce order. As long as order is maintained in the company, it will be delivered from crime.

”The same — that is, introducing order — will help tackle crime in the entire country, although this may require more time. However, on a nationwide scale, introduction of an order alone will not suffice. Society, too, must take part in the process.

“As regards libel and public speculation on such a sensitive issue as settling scores, in my opinion, such means not only smear that hard work but also disrupt it, undermining public confidence.”

(from : Moscow News)
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Comment from Webmaster : I did not see the film, but I've red all the russian newspapers that have published these accusations - they are not even logical! Shame on them!

Yukos Affair Grabs the Headlines Again

By Alla Zubkova The Moscow News
Last week the embattled Yukos Oil Company once again grabbed the headlines with a number of announcements from its management, its auditor and by Russia's President Putin himself. Yukos tried to dispel the shareholders' worries about its imminent bankruptcy, appealing to Putin's earlier statement that the government doesn't want to see the company ruined. Putin, in his turn, tried to dispel the investors' worries, and said that the state doesn't want to nationalize Yukos. The market analysts, however, didn't take the President's words too seriously
On Thursday, September 23, the Board of Directors of Yukos convened to discuss the company's future and its "divorce" with Sibneft Oil Company, which by now is considered a decided matter. Speaking before the meeting, Viktor Gerashchenko, the Board's Chairman, told reporters that Yukos has nothing against the de-merger with Sibneft as long as "everyone is left with acquired property" after the process is over. He also hinted that Sibneft, which is owned by Roman Abramovich (who so far has been able to keep a peaceful balance of powers with the Russian authorities), has promised to help Yukos solve its own problems in case of a peaceful and swift de-merger process. "There is the court's decision that we have to return 57% of Sibneft's shares," Gerashchenko said. "We could delay the transfer of shares for two months. But since Sibneft has promised us assistance in our negotiations with the authorities, and will provide us with time when we can exist peacefully, why would we procrastinate for two months?".
The meeting of the Board adjourned with a request to the company's management that it does everything in its powers to stave off a bankruptcy. Viktor Gerashchenko told reporters following the meeting: "We are acting from a conviction that our President [Vladimir Putin] does not engage in idle talk, and that his statement that it is not in the state's interest to see Yukos bankrupt authorizes us not to declare bankruptcy." Earlier Gerashchenko already expressed an opinion that Putin is constantly misinformed about the state of affairs at Yukos and that all of the decisions regarding the government's position on the issue are made by people below him. Yukos' Chairman also added that the Board decided that "the management should act in the proper way, ensure survival of the company, meet contractual obligations and pay taxes".

Another big piece of news that emerged on Thursday was the report leaked to the media from Dresdner Kleinwort Wasserstein audit company, which has been hired by the Russian authorities to evaluate Yukos' main production asset, Yugansk-neftegas, before its proposed sale at auction. The money received from the sale of Yugansk is to be used for making Yukos' payments of back taxes, which already amount to $7.5 billion. So far the company has been able to pay approximately $2.5 billion of this sum, but the payment process is seriously hampered by the fact that court bailiffs had arrested all of Yukos' accounts. According to the results of the independent evaluation of Yuganskneftegaz, which appeared in the press, the company is valued between $15 billion and $17 billion. This is much higher than the price tag previously placed on Yugansk by the Russian authorities. As a result, the Justice Ministry circulated a report which declined to comment on the result of valuation done by Dresdner Kleinwort. The market analysts, meanwhile, once again began to ponder the possibility that the authorities will simply recall Yugansk's production licenses in order to considerably lower its market value.

On Friday, September 24, the Russian President gave a large press conference at the Congress of World news agencies, organized by Itar-Tass. For the first time since June, when he said that "the Russian authorities and the Russian government are not interested in the bankruptcy of such a company as Yukos" Putin made public remarks regarding the fate of the embattled oil company. The President rejected all accusations that the government wants to nationalize Yukos and said: "The state did not strive then and does not strive now to seize the assets of Yukos. We have no such goal." He was quick to note, however, that "if in the future the assets of this company will go up for sale, state-owned companies may take part in the process". Realizing that his words may be interpreted "incorrectly" in light of the recent merger between the state-owned Rosneft and the natural gas monopoly Gazprom, Putin added: "However, such a goal [seizing Yukos' assets] never was and never will be set."

Such a statement by President Putin can be interpreted in at least two different ways. The optimists would say that the President, whose closest circle has been split by the Yukos affair, has finally chosen the side of market reformers headed by Economy Minister German Gref and Finance Minister Alexei Kudrin. They oppose the forcible nationalization of the oil company that is advocated by such representatives of siloviki faction as Igor Sechin.

The pessimists would say that Putin's statement is no more than beautiful words, and that the real information is contained in his Freudian slip when he said that state-owned companies would no doubt take part in selling out Yukos' assets.

The most illustrative was the reaction of the Russian stock market. Following the President's statement the price of Yukos shares grew by six percent, but soon afterwards the market analysts decided that Putin's words should be taken with a grain of salt, and the price of shares fell back by four percent. All of the market parti-cipants agree that President Putin's statement is mostly export-oriented, aimed to soothe the possible investors of their worries about a severe crack-down on economic freedoms. The real litmus test for the authorities will be the official announcement of results of Yugansk-neftegaz's evaluation and the government's subsequent actions. If the state keeps its word and puts Yugansk (or part of its shares) up for an auction at a price determined by the independent auditor, then President Putin's words can be considered an honest statement. If the officials find a way to considerably lower the price announced by Dresdner Kleinwort and, moreover, sell Yugansk to the newly created Gazprom-Rosneft giant, then Putin was simply buying more time.

(From : Moscow News)

YUKOS seeks to stave off bankruptcy

YUKOS seeks to stave off bankruptcy
MOSCOW (Reuters) - Russian oil major YUKOS is doing all it can to pay a $7 billion (4 billion pounds) back-tax bill and stave off bankruptcy, Chairman Viktor Gerashchenko has told the Kommersant daily.
"(The authorities) are trying to bankrupt us, and we are doing all we can to fulfil the demands placed on us by the tax authorities," Gerashchenko said.
"YUKOS itself will not declare bankruptcy."
He said officials were conducting a coordinated campaign to drive YUKOS out of business, and were "disinforming" President Vladimir Putin, who has said he did not want Russia's largest oil exporting firm to be bankrupted.
"The task facing state structures is to bankrupt YUKOS, and to subsume its assets into (state oil firm) Rosneft and (gas monopoly) Gazprom," said Gerashchenko.
Gerashchenko was speaking ahead of a YUKOS board meeting on Wednesday which will discuss how to recover $3 billion from Sibneft in return for completing the dissolution of a failed merger.
The merger hit trouble in the run-up to the arrest of YUKOS' founder and main shareholder Mikhail Khodorkovsky last October.
Many analysts see the prosecution of Khodorkovsky on fraud and tax evasion charges, and the tax onslaught against YUKOS, as Kremlin punishment for his support for the political opposition and refusal to kow-tow to Putin.
Bailiffs are demanding the payment of $7 billion in back taxes for 2000 and 2001, and have threatened to auction off YUKOS' core producing asset, Yugansk, if the money is not paid.
YUKOS , which pumps 1.7 million barrels of oil daily, says it cannot pay the tax bills as long as a freeze on its assets and bank accounts remains in force.
Courts (LSE: CRTO.L - news) have ordered share deals underpinning the Sibneft merger to be unwound, but YUKOS is still seeking to recover the $3 billion it paid for 20 percent of Sibneft, effectively controlled by Chelsea soccer club owner Roman Abramovich.
Gerashchenko said YUKOS would delay the return of a 57 percent stake in Sibneft it still holds, and if necessary take its case to international arbitration, if Sibneft does not return the money.
"We can always return to court in London. We will find money to pay our lawyers," he said. "And we know we will win."

(From Yahoo Business News)

Back to the Future for Yukos?

Russian President Vladimir V. Putin is a man of few words and never more so than when discussing the fate of Yukos (YUKOY), the giant oil company whose conflict with the authorities has dominated Russian politics and business for the past year. So it was on June 17, when, at a press conference at an economic summit in Tashkent, Putin briefly answered a simple question about Yukos. "The Russian government has no interest in the bankruptcy of a company like Yukos," he said.

The impact of Putin's brief words has been dramatic. Russia's stock market registered its biggest one-day rally since Putin became President. Yukos shares shot up by some 34% before trading was suspended an hour or so later. Russia's benchmark RTS index also jumped, rising 10% by the close of trading. The President's statement was the main headline for all the Russian news agencies and Friday's newspapers.

EMPTY COFFERS.
Why such a sensation? Because ever since May 26, when a Moscow court ruled that Yukos was liable to pay $3.4 billion in back taxes and fines demanded by the Tax Ministry, Russia's stock market has been plummeting on fears that the government was out to bankrupt Yukos.
These worries were largely fueled by Yukos itself, which warned that it had just $800 million in cash -- not nearly enough to pay the $3.4 billion. Although court appeals were set to rumble on for a few more weeks, Yukos and its investors were already preparing for the worst, convinced that the courts were under pressure from Moscow to rule against it.

The scare became so intense that it even overshadowed the trial of Yukos' former CEO and major shareholder Mikhail Khodorkovsky, which opened on June 16 (only to be adjourned for a week because one of the lawyers was sick). Khodorkovsky, an outspoken critic of Putin, is accused of privatization fraud and tax evasion, although it's widely perceived that he's actually being punished for meddling in politics.

However, most foreign investors have long since lost interest in Khodorkovsky. It's the fate of his company that concerns them. Around 30% of Yukos is owned by minority shareholders, many of them Western investment funds, which have invested some $10 billion in its stock in recent years. "Certainly this is a huge test for the investment case for Russia," says Chris Weafer, head of research at Russia's Alfa Bank.

UNWARRANTED EUPHORIA.
Hence the collective sigh of relief after Putin's statement. It means the government's dispute with Yukos will probably end through a process of negotiation, not through bankruptcy and a forcible government seizure of Yukos's assets, as many investors had feared.

In fact, those worries were probably overblown from the start. Although it's likely that Yukos will face an even larger back-tax bill (the $3.4 billion demanded so far represents taxes for just one year, 2000, and more claims are pending for later years), the total is unlikely to exceed $6 billion to $7 billion, say analysts. That's not an insuperable burden for a business with annual profits of $5 billion and assets reckoned to be worth some $30 billion.

Still, just as the panic over Yukos' potential bankruptcy was exaggerated, the euphoria following Putin's statement also seems excessive. Signs are emerging that as part of a deal with the government to avoid bankruptcy, Yukos will give shares to Moscow in lieu of tax payments. Such a negotiated renationalization of Khodorkovsky's shares in Yukos would maintain a sense of decorum -- but it still wouldn't be much to celebrate. Any transfer of shares is taking place under duress, and the government will probably get a bargain price.

MURKY DEALS.
That's why cynics will still claim that the tax case against Yukos was trumped up to justify a government seizure of Khodorkovsky's assets. "A lot of people are saying that the state wants control of a fully functioning oil company, so of course they don't want to bankrupt it," says Weafer. As the leading Russian daily Kommersant put it in its headline the next day: "The President has ordered Yukos to be taken alive."

It's a sign of how low investors' expectations had sunk that even this scenario is being greeted so positively. At least, by avoiding bankruptcy, the government has respected the immediate interests of minority shareholders.

True, the property rights of Khodorkovsky and his partners may not count for much -- but many aren't too disturbed. After all, Khodorkovsky's acquisition of that property through the murky privatizations of the 1990s wasn't exactly a model of fair play, either. And Yukos' minority shareholders now regard the disgraced oligarch as a liability, blaming him in large measure for provoking the government's attacks.

FOREIGNERS WELCOME?
In the long run, though, even a "voluntary" renationalization of Yukos carries big risks. The tax claims are legally questionable, so using them to renationalize Khodorkovsky's shares looks cynical -- and a worry for what it implies about property rights in general.

It will look even worse if, instead of reprivatizing these shares, Moscow decides to hang onto them -- perhaps merging them with one of the existing state energy concerns, Rosneft or Gazprom. "They'll probably create a humungous state-owned oil company," says Adam Landes, oil analyst at Renaissance Capital, a Moscow-based investment bank. Unlike Yukos, one of Russia's best-managed private concerns, these state-owned energy concerns are notoriously inefficient.

How will the affair end? Even a dream ending -- the sale of Khodorkovsky's stake in Yukos to a foreign investor -- still seems possible. Intriguingly, an anonymous government source, quoted in the Russian business daily Vedomost on June 18, implied that Moscow would welcome such a sale. "For Yukos there's now only one possibility to escape bankruptcy: The sale of a large stake to a foreign investor or to one of the state structures," he said. That suggests the government doesn't really care who ends up owning Yukos. Anyone will do. Just as long as it isn't Khodorkovsky.

(from : Business week online - Yahoo finance)
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Comment from the webmaster : THAT's what you call a "dream ending" ?!

Yukos export cut 'tests Kremlin'

The taxman is tightening his grip on Yukos

Russian oil giant Yukos is stopping most of its exports to China, saying that it cannot pay the transport costs.

The company, which pumps a fifth of Russia's output, is in dispute with Russian authorities over tax demands and has had its bank accounts frozen.
Analysts said Yukos' action was a ploy designed to put pressure on the Kremlin ahead of a visit to Moscow by China's Prime Minister Wen Jiabao.

The news helped push US light crude prices up 44 cents to $46.03 a barrel.
London-traded Brent crude was 26 cents higher at $42.71 a barrel.
Banned
Yukos said it planned to trim about 400,000 tonnes a month, or 100,000 barrels a day, from its exports to China - roughly 1.5% of Chinese demand.
The move could mean a renewed surge in energy costs, given soaring demand from China's booming economy, analysts said.

According to a Yukos spokesman, the company was suspending shipments to China National Petroleum Company but 200,000 tonnes a month going to Sinopec was "continuing so far", he said.

The decision was the result of "problems we are facing in paying our export duties and railway fees, because our bank accounts are frozen", the company said.
It has also been banned from selling assets to meet the tax demands, while bailiffs have threatened to dispose of a key production unit, Yuganskneftegaz, at what Yukos says is a knock-down price.
The company has warned for weeks that the campaign to charge it $3.4bn in back taxes for 2000 - with possibly similar amounts due for each of the succeeding years - would lead to a cut in shipments.
The campaign is thought by many observers to amount to payback for the political ambitions of its ex-chief Mikhail Khodorkovsky.
Mr Khodorkovsky was arrested last October, and is in jail while his trial on fraud and tax evasion charges continues.

'Death wish'

Cristopher Weafer of Alfa Bank said Yukos' move to cut supplies to China was "deliberately provocative".
He said it would "severely embarrass President [Vladimir] Putin in front of the international community" after Mr Putin had publicly promised that oil supplies from Russia would not be disrupted.
Stephen O'Sullivan of investment bank UFG agreed that Yukos' actions were "politically motivated and aimed at drawing international attention" to the company's problems.
Vladimir Savov of Nikoil brokerage said it "could help the company persuade the government to unfreeze its accounts".
But other analysts predicted the move would backfire.
Mr Weafer said it "might be likened to a death wish rather than a sensible strategy".

(From BBC)

“I Should Have Left Business 3 Years Ago"

Jailed oil tycoon Mikhail Khodorkovsky answers questions from readers of www.khodorkovsky.ru. In July-August of this year the Web-site invited questions to the jailed oil tycoon Mikhail Khodorkovsky from its readers. Over the past two months the site received hundreds of letters. A list of questions was forwarded to the entrepreneur through his defense team.

1) How is it possible to amass such an enormous fortune — $15 billion — in such a short period of time without breaking any laws?
Antonina Naumova

My stake in Yukos accounts for over 90 per cent of my fortune. Before the 1995 privatization the market value did not exceed half a billion dollars. Some may consider such a valuation as being low, but that is true, because not only the company’s potential but also the current state of affairs play a role in determining its market value.

As for Yukos, 9 years ago it was literally on its last legs, $3 billion in debt to external creditors, six-month wage arrears, a crisis in the technological chain and a moral crisis among the staff. Employees of extraction enterprises, having lost hope of being paid, were ready to take to the streets. Just try selling a company today whose staff is ready to go on indefinite strike and even revolt!

Over the past nine years under our management the value of Yukos has grown by 30 times. And this is what makes up my capital. In cash I received only dividends from the company. Their total sum did not exceed $1 billion over the years and was reinvested in the company.

That is why when such a high-placed lawyer as the prosecutor general of Russia Vladimir Ustinov says I could have repaid the so-called tax debt of Yukos — inflated by tax officials to the far-fetched amount of $7 billion — from my own wallet, he is simply suffering from the inefficiency of his economic aides. If and when Ustinov’s team is joined by professional economists, they, I hope, will point out that the unfortunate error to Vladimir Vasilyevich [Ustinov].

I would also like to say a few words about the so-called framework of the law. Yukos was privatized in strict compliance with the legislation effective in Russia in the mid-90s. Of course, those laws were not perfect.

But passing laws and formulating the rules of the game is a prerogative of the state. And if the state considers its previous actions inappropriate, it should direct its questions to its own high-placed officials. Venting its anger on people who have managed to squeeze their entrepreneurial energy into the framework of the law is hardly the most reasonable method for a responsible power.

2) When did you reconsider your position and what prompted you to focus on the problems of civic society and public interests instead of your personal interests in business and professional activities? What has served as the main impulse, the catalyst for those changes in your consciousness?
Aleksei Borisov

I have always had a propensity for public activities. And our business launched in the late 1980s, was not so much a machine for making money as a form of asserting our right to true freedom. We sought to prove to ourselves and to the country, that a Russian, a Soviet person has the right to break out of the limits of the stuffy life, where every hour and every minute is scheduled by [Communist] party cells. That he has the right to use his energy and talent for real economic and social achievement.

I am a permanent resident of Russia. And in Russia nothing has ever been done for money alone. Russians need a miracle. And wasn’t that a miracle — to boost the value of the company that you run 30-fold over a few years! To revive faith in well-being and justice, hope for a stable future among the employees of the company who had lost almost all hope by 1995!

But in the late 1990s I realized that our negative understanding of freedom, formed in the stifling atmosphere of the late totalitarian USSR, ’freedom from something’, was exhausted. The time had come for me to acknowledge my duty to society, to the country that had given us our education, to move to a positive understanding of freedom, as ’freedom for something’.

That is why we began forming public and charitable institutions, investing money in the infrastructure of the civic society, launching social programs, first and foremost, in the sphere of education. I am convinced the ideas of the next generations of Russian citizens, of the people who will shape the fate of Russia in some 10-15 years, is, in many respects, determined by the education system.

We adopted a new strategy of development for Yukos aimed at creating a ’social corporation’.

For that purpose a pension fund was set up for Yukos employees, where by summer 2003 we had accumulated about 10 per cent of the company’s shares (as I have heard, money and shares belonging to pensioners have been seized at the request of the Prosecutor General’s Office). I would like to note that the amounts accrued there are much higher than I received in dividends throughout the entire period of my work in Yukos.

We adopted a plan to increase wages, stipulating that an average wage in Yukos would reach $1,500 by 2009. By comparison, the average wage in Russia does not exceed $200 per month. And if Yukos survives, I am convinced that this plan will be implemented.

I have been in prison for over 10 months now. Having freed me of my worries about running business, prison has given me time to think, to ponder on my personal strategy. That is what I will say — if there is something I regret it is that I did not leave business earlier, in 2000-2001, so as to focus fully on my public activities.

After all, the interests of businesses and those of a civic society are different, at times, even conflicting. And in future I am set to focus on social projects. Many think Yukos will be taken away from me. Perhaps, this is indeed what will happen.

For my part, I am ready to give away my stake for the company to be spared from destruction, for the technological system to be preserved, and as a consequence, for Yukos to remain a stable corporation that pays high wages and taxes, contributing to the socio-economic stability of the country.

But in my imminent parting with Yukos I see an advantage. I will no longer have to be involved in protecting the company’s interests and my property, which means, my internal conflict of interests will be solved.

3) Could you please give a brief evaluation of the prospects of preserving Russia as a single, independent, relatively developed state within the next 30 years, provided economic liberalization continues and Russia joins the WTO?
Viktor Makarov

In a sense Russia is a developed state — in terms of its intellectual potential, the volume of its natural resources, as well as in terms of its unique role in world history. I could never agree with those who consider Russia a third-world country. Besides, the third-world doctrine, as such, has long become obsolete.

Liberal reforms have been consistently implemented in the Russian economy in the course of the past 13 years. Those reforms continue today, although many call Putin an enemy of liberalism. On the whole, under the incumbent president the course of de-regulating the economy, the renunciation of state dirigisme has been preserved.

I believe the main positive result of the liberal reforms is that millions of our fellow-countrymen have felt the taste of economic freedom. The liberal economy contributed to the liberation of many a talent that would have never developed in the administrative-command pseudo-socialist system.

However, many mistakes have been committed in the course of those reforms. To begin with, the authorities ignored the social price of reforms and the fact that social peace is a prerequisite for sustainable liberal development.

Today we pay for that omission with mistrust on the part of the overwhelming majority of the population in business and with the failure of liberal-oriented political forces in the 2003 elections, with the formation of a de-facto one-party bureaucratic parliament that has turned into an appendage of the presidential administration.

Another mistake is the neglect of the tremendous intellectual and technological potential accumulated in the defense sector of the former Soviet Union. Russia has had no consistent industrial policy aimed at stimulating the preservation and development of the military-industrial complex as a reservoir of creative forces for the country.

This, to a great extent, brought about a sharp increase in the raw materials share of the economy, deepening Russia’s dependence on crude oil prices on the stock exchange. Neglecting the problems in hi-tech industries resulted in a considerable part of the technical intelligentsia being disappointed in the liberals and joining the ranks of [nationalist] Rodina and the Communist Party, although in the late 80s and early 90s it formed the vanguard of the fight for dismantling the Soviet totalitarian machine.

Liberal reforms should be continued. Most importantly, monopolies should be reformed, small business developed, a competitive environment formed, which will imminently bring about social harmonization. With the period of domination by the business-oligarchy ending we should not allow a bureaucratic oligarchy to be formed.

Another priority issue is the development of industrial policy aimed at accelerated development of the hi-tech sector and support of fundamental and applied science. In the strategic outlook, Russia will not be able to rely on the ’oil needle’ forever. Neither does industrial policy rule out governmental investments, especially in what concerns infrastructure projects, which should not be shunned, as namely the state can set an example for business and prompt the latter to invest in certain branches and sectors of the economy.

Finally, the key issue concerns competent use of the intellectual potential of the nation. We must stop the brain drain and create conditions for the hey-day of our ’intellectual elite’. And that requires not only an appropriate economic infrastructure but also the institutions of civic society.

4) Do you think formation of a democratic society in Russia is possible with society’s mistrust in business being so high? What force could forestall the degradation of Russian society and its return to the Soviet-era mental state of an intimidated flock?
Vitaly Shevtsov

Democracy and the interests of business by no means coincide. The main goal of business is to make money. And quite often the lack of a democratic environment contributes to super-profits. Most international corporations have a rich experience of cooperation with dictatorial regimes across the globe; those regimes ensured a kind of stability those businesses could not even have dreamed of from democratic organs of power and civic institutions.

In Russia in the 1990s major business, unfortunately, did not become the standard bearer of democracy. And we share the blame for the decline of public institutions, too.

It is important to distinguish between such concepts as ’democracy’ and ’liberalism’. Nations rarely vote for human rights and freedoms. The 2003 elections, after all, can be called quite democratic, although the liberal forces were comprehensively defeated.

Being a liberally-minded person, I believe that a citizen of Russia, just like a citizen of any other country, deserves freedom as a set of inalienable rights. Those rights are given to us as a birthright, not in line with some position in some hierarchy. Those rights can never be taken away by anyone, democratically elected authorities included. In this sense, democracy too must have a limit which it cannot exceed.

The state and civic society have to guarantee that the freedom of press, consciousness, assembly, and movement cannot be taken away from a person for the sake of some group interests. For instance, the state guarantees the protection of employees’ rights in their disputes with employers. This is also a form of human rights protection.

I, together with my associates, am set to assist a full-fledged civic society and the state, too, as long as it fulfils its obligations as guarantor of inalienable rights and freedoms.

5) What would you, in retrospect, have changed about your life?
fridaysays@yahoo.com

I would have left business and focused on public activities some 3-4 years ago, so as to be independent from corporate interests. I would have devoted most of my time to studying world history and idealist philosophy. I would have spent more time with my family, my children. In other words, I would have relieved myself of the tyranny of property and directed my energy at my own intellectual development, thus enhancing my inner freedom. The freedom a person can only earn himself.

HERE

Key Yukos unit may lose oil license

Russia's Resources Ministry will decide in two weeks whether to revoke the production licenses of oil major Yukos' key Siberian unit Yugansk after it stopped paying taxes, a ministry source said on Friday.

The move is a fresh blow for Yukos, whose accounts are already frozen by bailiffs seeking to secure payment of over $7 billion in back taxes for 2000 and 2001.

It also puts time pressure on investment bank Dresdner Kleinwort Wasserstein, which the state hired last month to value Yugansk for sale to raise money to cover the tax debt.


"After analyzing the way the licenses' terms are fulfilled our specialists have concluded that non-payment of taxes is a serious enough reason to suspend licenses and revoke them through court procedures," the source told Reuters.

He said the Tax Ministry sent a complaint this week that Yugansk, which produces 60 percent of Yukos' crude, had stopped paying current taxes.

Yukos, Russia's top oil exporting firm, has said that a freeze on its bank accounts imposed by bailiffs means it can no longer pay its taxes or fund daily operations.

The source said Yugansk owed a total of 3.55 billion roubles ($121.5 million) in taxes, due this and last month.

Yukos was quick to criticize the threat. "President Vladimir Putin asked journalists this week to name officials who wanted to bankrupt Yukos and promised to fire them," Yukos' spokesman Alexander Shadrin told Reuters.

"I think we know now where these officials are."

Shares of Yukos, which have lost nearly three quarters of their value since April, lost all their session gains of six percent on the news, but soared later on Friday to close nine percent up at 128.5 roubles on the MICEX bourse.

Traders said the rally was due to Western buying on rumors that Yukos had finally managed to clinch a deal to demerge itself from former partner Sibneft and could get an extra $3 billion.

Others said market participants were aggressively closing short positions ahead of the weekend. In London, Yukos shares rose almost eight percent to $17.35.
Dresdner under pressure

Yukos' tax troubles are part of a broader campaign seen by many as being orchestrated by the Kremlin to punish Yukos' main owner Mikhail Khodorkovsky for political activities. He is now on trial on fraud and tax evasion charges.

On Thursday, Khodorkovsky predicted he would be stripped of Yukos and reiterated he was ready to cede control to avoid a brutal dismantlement of his firm.

The state claims Yukos owes $3.4 billion in back taxes for 2000 and $4.1 billion for 2001. It is also checking 2002-2004.

On Friday, Yukos lost the last appeal against claims for 2000 after the deadline to pay the bill expired in August.

Interfax news agency also reported that a Moscow court would start a hearing into the tax ministry's $1.4 billion back tax claim for 2001 on September 24. The ministry has already started collecting $2.7 billion without going to court.

Analysts believe the state would not seek to paralyze Yukos' production activities to avoid Western criticism for fueling global supply disruption fears and pushing oil prices further from their current peaks.

The threat of licenses withdrawal is not the first from the resources ministry, which said last year it may revoke some deposits from the troubled major. But President Vladimir Putin at the time criticized the idea, which was never implemented.

Banking sources said last week Dresdner could come up with a valuation of Yugansk before the end of September, but the valuation would be a range of figures taking into account different scenarios rather than a single figure.

Analysts put Yugansk's value at around $15 billion, although they say one of the valuations in the range could be much lower if Dresdner decides to take into account political risks, such as the possibility of licenses' withdrawal.

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Yukos gains on demerger rumour

Shares in Yukos gained 9 per cent on the Moscow market this afternoon as rumours circulated that the cash-strapped Russian oil giant could have extricated itself from a major partnership.

Reuters reported some analysts suggesting that Yukos had had agreed on a demerger from Sibneft. Further details were not available.

The Sibneft-Yukos partnership was heralded as creating the fourth-largest privately owned oil company in the world when it was announced in April 2003. The combined venture was expected to pump more oil on a daily basis than Chevron Texaco, the US oil giant, but the tie-up provoked disquiet in the Russian press.

However, the rally surprised many observers, who said it ran counter to the flow of bearish news surrounding the oil company.

A further negative development emerged this afternoon when Mikhail Khodorkovsky, Russia's richest man when he was chief executive of Yukos until his imprisonment last year, said he was unable pay Yukos's tax bill from his personal fortune.

Mr Khodorkovsky, who was jailed last October on charges of fraud and forgery, still owns a substantial share of stock in the country's largest oil producer and has said he is willing to hand over his shares to help Yukos avoid collapse.

The company faces a 99.4-billion-ruble (£2bn) tax bill for 2000 which Yukos says could drive it into bankruptcy. Further claims for subsequent years are expected to follow.

The Russian government has made no public comment about Mr Khodorkovsky's offer to give up his shares. The tycoon has rejected officials' suggestions that he has enough cash to pay the bill himself.

In comments published on his press service's Web site, Mr Khodorkovsky said most of the money he had received from dividends had been reinvested in Yukos.

"So when a respected lawyer like the General Prosecutor of Russia Vladimir Ustinov says that I could pay for the so called tax debt ... using my own funds, he is simply suffering from his poorly qualified economic team," Mr Khodorkovsky's web-site said.

"Many think that they will take Yukos from me. That's probably the case," it added

The crackdown on Mr Khodorkovsky and the parallel tax case against Yukos has been interpreted by observers as punishment for the tycoon's political activities and his funding of opposition parties in the run-up to last year's parliamentary elections.

While defending his record at Yukos, whose value he claimed to have increased 30 times, Mr Khodorkovsky said he would be happy to abandon business altogether.

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Court Extends Pre-Trial Custody for Yukos Shareholder Lebedev

On Friday the Meshchansky District Court of Moscow extended the term of pre-trial custody for Platon Lebedev, former chief of the Menatep holding group and a key shareholder of the Yukos Oil Company, the Interfax news agency reports. The ruling fulfilled a request of the state prosecutor who had asked that the term of Lebedev’s detention be prolonged for three more months.

Lebedev’s lawyers have repeatedly complained about the poor state of their client’s health and said that he should be released, but prison officials have so far turned down all these requests.

Platon Lebedev, the former head of the Menatep holding and a key shareholder of the oil giant Yukos, together with his business partner Mikhail Khodorkovsky stand accused on seven counts, including large-scale fraud and tax evasion. Many analysts see Mikhail Khodorkovsky’s political ambitions as the real reason behind the so called Yukos affair.

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Khodorkovsky Unable to Pay Off Debt, Ready to Give Up Shares

The former head of Yukos oil company, Mikhail Khodorkovsky, said he is unable to pay off the company’s debts from his own funds.

In an interview provided to Interfax news agency by his lawyers, Khodorkovsky said he received only dividends from his company. For the nine years of the company’s existence, their entire sum did not exceed a billion dollars and was reinvested in the company.

Khodorkovsky said it is possible that he will lose his company. “I am ready to give [up] my share holding not to let it collapse, to keep the technology system and the corporation that pays high salaries and huge taxes, provides to the social and economic stability of the country,” he said.

The former Yukos head was quoted by the agency as saying he regrets that he did not quit the business in 2000-2001. “The interests of business and of the civil society are different, often opposite,” he explained. Khodorkovsky said he intends to concentrate on social projects.

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Ministry Threatens to Recall Production License from Yukos Subsidiary

Russia’s Natural Resources Ministry may recall all production licenses from Yuganskneftegaz, Yukos’ main production asset, a source close to the Ministry told Interfax on Friday, September 10. According to the source, the move may be in response to a letter the Ministry received from Russia’s Tax Service.

The Tax Ministry reported that Yuganskneftegaz owes more than 3.5 billion rubles ($119 million) in taxes, and in particular in extraction taxes. After the preliminary analysis of licensing agreements the Natural Resources Ministry’s experts came to the conclusion that failure to pay taxes by a fixed date may be “sufficient grounds for the recall of licenses, since this condition was written in the licensing agreement”. The situation will be considered within the next two weeks, said the source, adding that “the Natural Resources Ministry doesn’t exclude the possibility of suspending, and later recalling the licenses”.

Yuganskneftegaz is the main production asset of Yukos Oil Company, responsible for 62 percent of the oil major’s total output. Earlier this month Yuganskneftegaz’ executive manager Sergei Kudryashov said that currently the company owes 4 billion rubles ($137 million) in taxes. Every month Yugansk pays 7 billion rubles ($234 million) in taxes, but no payments have been made since the end of August, because the company’s accounts were arrested.

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Moscow Court Upholds Yukos Shareholder’s Arrest Warrant

The Moscow City Court turned down an appeal asking it to reconsider the arrest warrant for Yukos shareholder Leonid Nevzlin, who is currently in Israel.

Nevzlin is accused of conspiring to murder several people “dangerous to their organization”, and a warrant for his arrest was issued in July, after he fled to Israel just before former CEO Mikhail Khodorkovsky’s arrest in October of last year, the Newsru.com news site reported.

His defense filed an appeal against the arrest warrant that the Basmanny Court ruled in favor of in July, after the General Prosecutor’s Office asked for his arrest.

Nevzlin, who has often spoken out in support of liberal and reformist policies, said last spring that he was leaving the public sphere, citing the trial of his colleague Khodorkovsky.

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A Teflon President

A new survey of Vladimir Putin's political career chronicles his rise to power and assesses the successes and failures of his first term in office.

The first six months of Vladimir Putin's second term have surely been some of the worst of his presidency. As Putin and other leaders of the G8 made an awkward little walk along a blustery beach on Sea Island, Georgia, this June, a banking crisis was brewing in Moscow, provoked by sloppy comments from officials.

On his return to the Kremlin, Putin had to call in the Central Bank chairman to try to calm the situation. Russians were not convinced and waves of creditors demanded their money from Alfa Bank, the country's biggest private bank, while the authorities tried to argue that it wasn't a crisis, and blamed the public for being hysterical and the media for provoking the whole thing.

Prime Minister Mikhail Fradkov, whom Putin appointed in March to replace Mikhail Kasyanov, has excelled at not making decisions, keeping most reforms on hold apart from the poorly presented and very unpopular -- though perhaps essential -- changes to the social benefits system. Key ministers have clashed with Fradkov at cabinet meetings while the much-trumpeted administrative reform brought confusion and left officials unpaid for months.


Putin's credibility has been placed on the line with the absurdly handled attack on the chief shareholders of Yukos, the country's biggest oil exporter. It is as if Mikhail Khodorkovsky, the main Yukos owner, is showing us the reflection of Medusa in his shield, using the crackdown to illustrate the real condition of the state and those who run it.

This month, Russians watched the chaotic and bloody end to the hostage crisis in North Ossetia, where hundreds of children died, making it the worst terrorist attack in the country's history.

All this at a time when Putin is supposed to be at the height of his power and the economy is booming for a sixth straight year. The grand opening of Putin's second term has surely been a flop, showing the ambiguities of the president's aims and the weakness of the system he has helped to shape.

Andrew Jack, Moscow bureau chief for the Financial Times, provides skillful insight into Putin's first term and the seeds of his (so far unimpressive) second term. No cold warrior, Jack gives a balanced critique of Putin's Russia, both chilling and optimistic. He tries to place Putin in his context, to give a taste of the country's chaotic history and show us the complexity of the decisions facing the country and its president. In doing so, the author displays an understanding that is sadly lacking in much that is written about this fascinating country.

Jack is enthralled by the degree to which Russians have -- or haven't -- come to terms with their Soviet past. Like the pact of silence that followed Franco's demise in Spain, the horrors of the Soviet Union are off-limits to many Russians. Indeed, many believe the collapse of the Soviet Empire left them worse off, and look back with nostalgia to the real or imagined stability and power of the past. Jack deals compassionately with the ambiguity of these memories, and links them to Putin's astute use of hybrid Soviet paraphernalia during his first term.

Putin's attempt "to build a bridge to the Soviet past while nurturing a new Russian pride" is one of his greatest achievements, Jack says, since it helped to cement the transition from the Soviet Union to capitalism. It is, after all, easy to forget the chaos of the Yeltsin years, and Putin has supplied some desperately needed, if fragile, stability.

"Inside Putin's Russia" is a pleasure to read and the criticism, when it comes, can be cutting, with Kremlin policy sliced in a few careful phrases. Yet Jack doesn't hog the pages, preferring to leave the facts and inconsistencies -- such as conflicting accounts of Putin's KGB career -- to speak for themselves.

The professors of St. Petersburg University's law faculty, where Putin studied, give some devastating quotes in which they come across as supporters of laws that toady to the powers that be. They seem to be blinded by the status of their former students, who include Dmitry Medvedev, now Putin's chief of staff, and Dmitry Kozak, the Cabinet chief of staff.

Jack traces Putin's career and his move to Moscow, helped into the Kremlin by Pavel Borodin, then head of the presidential property department, but blocked by Anatoly Chubais, then Yeltsin's chief of staff and now the very silent head of Unified Energy Systems. As Putin's move hung in the balance, Alexei Kudrin, now finance minister, drove to the airport with Putin and made the telephone call that got the future president through the gates of the Kremlin.

Chechnya is given ample space, and rightly so, for it is surely one of Putin's weakest points, an embarrassing boil in a very delicate place. Putin's reaction to the 1999 invasion into Dagestan, and the strange apartment bombings in Moscow, helped him to the top. For Jack, though, the war remains one of Putin's biggest failures. Tens of thousands are dead, the republic is devastated and Chechen fighters are still able to inflict deadly assaults against Russian forces while bloody terrorist attacks continue.

Best on the high politics of Putin's presidency, Jack leads the reader around the events, calmly explaining what is really going on and providing the quotes to back it up.

This is the real strength of the book: Jack gives us the knowledge of a journalist on the beat, the perspective of a good historian and interviews with key players, including many of the oligarchs.

The attack on Vladimir Gusinsky's Media Most was skillfully presented by Gusinsky's defenders as a crackdown on media freedom, yet Jack shows the attacks were much more about Gusinsky's failure to understand Putin. Jack gives a fascinating account of how Gusinsky is said to have basically threatened Putin at meetings in the winter of 1999, demanding a $100 million state credit in return for support. Those were their last meetings.

The taming of NTV has also left the country's media less critical, typified by the fawning coverage of the state channels. "Putin's blackest mark appears to be democratic back-sliding," Jack writes. "With a more tightly gagged media, the president becomes the first victim of censorship."

Jack describes Putin well: a cautious president, who is neither drunk nor ill, but who is very hard to categorize, almost slippery. "A Teflon personality designed to draw out his interlocutors without revealing much about himself, saying what they wanted to hear and promising what they sought, while not necessarily believing or planning to implement it."

Putin has been fortunate, presiding over the strongest burst of economic growth in recent Russian history, helped by high prices for oil, gas and metals but also sensible economic policy. Jack shows a president in charge of a disparate country, attempting to bring the order that will make her strong again economically and thus strong abroad, fulfilling what many see as her true destiny.

Toward the end of the book, Jack becomes more concerned about Putin, describing the autumn of the oligarchs and Khodorkovsky giggling nervously in his study a few months ahead of his arrest. The battle with Khodorkovsky has illustrated Putin's contradictions and, ultimately, his weakness.

Putin wants the benefits of independent business but cannot suffer pushy businessmen; he wants the dictatorship of the law but the law is used selectively; he wants an efficient economy but boosts state control. Putin's conflicting views on state and private property -- those of a KGB colonel and a free-market lawyer -- threaten his greatest achievements: economic growth and the perception of stability. In doing so, VVP may be hurting GDP.

Jack has produced the best introduction to Putin's first term so far available in English. The next four years will show us what Putin can do and, crucially, whom he chooses for the succession. The first six months of his second term do not bode well.

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Yukos Woes Increase With Collection Order

Russia's Tax Ministry has slapped Yukos with a collection order on part of a back tax claim, raising the total due to $6.1 billion, the embattled company said Tuesday.

Yukos has paid $2 billion out of a $3.4 billion back tax bill for 2000, and tax authorities say it also owes $4.1 billion for 2001.

Yukos confirmed that it received a collection order for $2.7 billion of the 2001 claim. While the order can be challenged, bailiffs may begin enforcing it at once.

The ministry had hiked the 2001 claim by $750 million, but the order, which was dated Sept. 6, marked the first time it had moved to collect any of that money.

The increased bill makes it easier for the government to justify the sale of Yukos's core subsidiary Yuganskneftegaz, a company source said. Bailiffs are preparing the subsidiary for sale against the tax owed, and oil analysts expect the unit, or a part of it, to be bought by a Kremlin-friendly company.

Analysts say the Tax Ministry is eventually expected to present claims totaling over $10 billion for 2000-2003.

The mounting claims are part of a web of legal actions against jailed former Yukos CEO Mikhail Khodorkovsky and his company - which produces one fifth of Russia's crude oil - that is seen as punishment for the growing clout he demonstrated last year, and his funding of opposition parties.

President Vladimir Putin has portrayed the case as a clampdown on shady business practices that must be resolved through the courts. In an interview Monday with foreign journalists and academics, Putin reiterated that he is not trying to bankrupt Yukos, according to a participant's notes.

Because the Tax Ministry is only going after the core tax amount plus interest for 2001, not penalties and fines accrued, it needs no court decision to begin collecting, a Yukos spokesman said. The ministry has filed to retrieve the remaining $1.4 billion in penalties and fines through courts, the ITAR-Tass news agency reported.

With the accounts of its subsidiaries and head company frozen, Yukos warned last week of production and wage interruptions. Market watchers, however, say the chances are slim that Putin would allow a production decline in an industry that accounts for most of the country's budget inflows and much of his political clout overseas.

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YUKOS Denies Plans to Sell Refinery

Russian oil major YUKOS denied on Wednesday reports it planned to sell its Lithuanian refinery Mazeikiu Nafta to help cover its huge back tax bill.

"We have no plans to sell our strategic assets, including Mazeikiu," YUKOS' spokesman Alexander Shadrin told Reuters.

Vedomosti business daily reported on Wednesday that YUKOS plans to sell Mazeikiu, which also includes a 200,000 barrels-per-day crude oil export terminal in Butinge on the Baltic Sea, to raise more cash toward covering back taxes.

Vedomosti quoted sources as saying that YUKOS was in talks to sell its 53.6 percent stake in the complex and several Russian companies had already expressed interest in buying it.

One source said Mazeikiu Nafta assets were not under arrest as YUKOS does not own them directly.

YUKOS missed last month's deadline to pay $3.4 billion in back taxes for 2000 saying it had managed to raise only $2 billion.

On Tuesday, the Tax Ministry also started to collect $2.72 billion from YUKOS' bank accounts out of its total claim of $4.1 billion for 2001 back taxes.

YUKOS' tax woes are part of a broader campaign seen by many analysts as orchestrated by the Kremlin to punish the company's politically ambitious founder Mikhail Khodorkovsky, now on trial on fraud and tax evasion charges.

Mazeikiu turned profitable last year after being taken over by YUKOS in 2002. It refined more than 3.9 million tonnes of crude and other feedstock in the first six months of the year, or more than 154,500 barrels per day. It is over 1 million tonnes more than in the same year-ago period.

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Khodorkovsky Calls for Solidarity Against Terror

Former Yukos head and jailed tycoon Mikhail Khodorkovsky called on Russians to stand united and vigilant against terrorism, in a statement released by his press service. He said that the fight against terrorism depends only on the Russian people.

“The hatred of some multiplied by the indifference of others — that is what blows up homes, schools, airplanes, what maims our children,” the statement read. “There are no special forces that can protect an indifferent people.”

“Hatred cannot be defeated with rage,” the statement said, “they only multiply one another.”

“Solidarity, helping others and understanding others — this is where our victory lies, for us and for our children. This is what is meant by civil society,” Khodorkovsky said.

“I am certain that we can find the strength in ourselves and transform our feelings into help, into help for those who need it right now, and so that it doesn’t happen again,” the former Yukos head continued.

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Taxman targets Yukos bank account

Russian oil giant Yukos has said the tax ministry aims to take 79.3bn roubles ($2.7bn) from its accounts without court approval.

Yukos said in a statement that tax officials had decided to treat the payment demand as a "no-contest claim."

The company said it would appeal against the decision, while the tax ministry declined to comment.

The move looks set to intensify a protracted tax dispute which Yukos has warned could bankrupt it.

Earlier this year, the authorities issued Yukos with a $3.4bn tax demand for 2000, which was backed by the courts.

The company, which is legally barred from selling assets to raise cash, has already missed a deadline to settle that bill.

Cash squeeze

The $2.7bn that the tax ministry plans to take from Yukos' accounts covers about two thirds of a separate tax demand for 2001.

The company's total tax bill for 2000 and 2001 now stands at $6.9bn, and it is expected to receive a further demand for 2003.

Analysts say the Russian government's ultimate aim may be to force a sell-off of Yukos' key Siberian oil and gas unit, which accounts for 60% of the company's production.

There has been speculation that the Siberian unit, Yugansk, may be bought by a state-run company, bringing a large chunk of Russia's lucrative oil industry back under government control.

The Russian authorities' crackdown on Yukos began in October last year with the arrest of its former chief executive, Mikhail Khodorkovsky, on fraud and tax evasion charges.

The move was widely seen as a politically-motivated response to Mr Khodorkovsky's support for liberal opposition groups.

Fears that the tax dispute might force Yukos to suspend production has contributed to the recent surge in world oil prices.

The company accounts for about 2% of global oil production.

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Yukos Lawyer Summoned As Company Appeals

Prosecutors tightened the screws on Yukos on Monday, calling in the oil giant's top in-house lawyer for questioning after searching his office and apartment on the same day the company challenged a freeze on its subsidiaries' bank accounts.

In the latest steps against Russia's biggest oil producer, prosecutors are seeking to collect $2.6 billion from the frozen accounts of subsidiaries of Yukos, which courts have ruled owes $3.4 billion in back taxes for 2000.

The company appealed the freeze in a letter to prosecutors in which it repeated an earlier warning that the company could be forced to cut output if cash-flow at the production units is hampered.

Russian authorities claim such warnings are a publicity ploy, and analysts doubt that President Vladimir Putin would allow a fall in crude output in an industry that accounts for much of Russia's budget intake and has driven the country's recent economic growth.

The letter posted on Yukos' Web site said the company would be opening new accounts for its subsidiaries.

A day after the news of the account freeze last week, the Tax Ministry filed a revised back-tax claim of $4.1 billion for 2001. More claims - which must be upheld by a court before they can be enforced - are expected to follow. Analysts anticipate a final bill of more than $10 billion for the 2000-2003 period.

Adding to Yukos' most recent spate of woes, chief in-house lawyer Dmitry Gololobov was ordered to appear before prosecutors for questioning about alleged asset-stripping by Yukos managers at the Eastern Oil Co. after its acquisition by Yukos.

"I see this as absolute repression," Interfax reported Gololobov as saying. "I have given numerous explanations in the Eastern Oil Co. case and the investigators have never made any claim against me."

Yukos spokesman Alexander Shadrin told the agency that summoning Gololobov and confiscating documents and computers was aimed at weakening the company's legal defense.

The yearlong campaign against Mikhail Khodorkovsky, Yukos' jailed billionaire owner, and the company he built has been cast by the Kremlin as a clampdown on shady business practices, though observers see it as a politically motivated reaction to Khodorkovsky's growing clout and his funding of opposition groups.

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Yukos ready to open new accounts

Russia's top oil exporter, Yukos, said yesterday it would open new bank accounts to fund its daily operations after bailiffs seized accounts of its main oil-producing units.

"Those affiliates of Yukos whose accounts are seized will be forced to open new accounts, which will be used only for funding of daily operations, payment of taxes and salaries," the firm said.

Yukos warned last week it might be forced to cut output after a Moscow court ruled that $2.6bn (£1.46bn) of its funds could be seized. The money is from Yukos's two core Siberian units, Yuganskneftegaz and Tomskneft, held on accounts of a Russian affiliate of French bank Crédit Lyonnais. Bank accounts of parent company Yukos have been seized since June in a state campaign to force Yukos to pay $3.4bn (£1.9bn) in back taxes for 2000.

Yukos's tax woes are part of a broader campaign seen as organised by the Kremlin to punish the firm's politically ambitious founder, Mikhail Khodorkovsky, who is on trial on fraud and tax evasion charges.

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Tax Service Raises 2001 Yukos Bill to $4.1Bln

The Federal Tax Service slapped Yukos with a $4.1 billion back-tax bill for 2001 on Friday, $700 million more than its original claim, which was announced July 1.

The amended bill, the largest in Russian history, raises the total demand against the company for the years 2000 and 2001 to $7.5 billion and comes as the Justice Ministry prepares to sell Yukos' main production unit.

Additional claims for subsequent years are expected.

Yukos spokesman Alexander Shadrin said tax officials delivered the bill Friday and gave the company until the end of the day to pay it off, which it failed to do. He said Yukos would contest the bill in court.

The Federal Tax Service issued a statement saying Yukos falsely attributed oil sales to related companies registered in regions offering tax benefits. As a result, it said unpaid taxes and fines total 119.9 billion rubles.

A spokesman for the service declined to comment on the deadline for paying the new bill, which came just two days after the deadline expired on a $3.4 billion bill for the year 2000, with $1.4 billing still outstanding.

The next day, Thursday, Yukos said that it would be forced to stop producing oil after a Moscow court had ruled to freeze up to $2.6 billion of funds entering the accounts of production units.


Those units, particularly Yuganskneftegaz, which accounts for most of Yukos' production, have become targets in a clash between President Vladimir Putin and Yukos founder Mikhail Khodorkovsky, who is currently being tried on charges of tax evasion, fraud and leading an organized criminal group.

"The authorities are trying to increase the claims to make the highest possible back-tax bill while putting pressure on Khodorkovsky and his team," said Caius Rapanu, senior energy analyst at NIKoil in Moscow.

Yukos faces a spiraling tax bill: The Federal Tax Service is probing the company for 2002, and prosecutors last month confiscated documents relating to 2003 and 2004, raising the prospect of additional bills, possibly even against Yukos' units, which are also being probed for 2002.

Boosting tax claims against the company puts pressure on Group Menatep, Yukos' core shareholder, as investment bank Dresdner Kleinwort Wasserstein values Yuganskneftegaz for possible sale by the government.

Many investors said they expect tax claims against Yukos to keep rising until they total what Yuganskneftegaz can be fairly sold for -- most likely to a company or companies close to the Kremlin.

"At this stage it is difficult to surprise Yukos with new tax claims," said Yukos spokesman Hugo Erikssen.

News of the increased claim hit just as much of the world was watching the tragic events unfold in the deadly hostage siege in Beslan, North Ossetia.

According to the Federal Tax Service, Yukos used organizations registered in the republic of Mordovia, the republic of Kalmykia and the northern Siberian autonomous district of Evenkia.

"The company deliberately took actions to artificially document turnovers of oil and oil products through specially created organizations registered in Russian regions and towns, illegally presenting additional tax breaks," the service said in the statement.

Confirming the 2001 claims may take time. It took Yukos six months to exhaust its appeals over the 2000 bill, which was announced Dec. 29.

"This could well take several months to enforce as Yukos is likely to appeal the decision and the procedure takes a long time," said Sergei Suverov, head of equity research at Bank Zenit. "The bill is higher than expected and there will be additional demands against the company and its units."

Located in western Siberia, Yuganskneftegaz is the basis for the name Yukos. The subsidiary pumps about 1 million barrels of oil per day, more than Libya, and accounts for two-thirds of Yukos' output.

"The end of the story will entail dismantling Yukos, and Menatep will lose all control over the company," said Rapanu from NIKoil.

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Russia increases Yukos' tax bill

Yukos has had its tax bill for 2001 upped by Russia's tax ministry, a move that may push the beleaguered oil and gas giant closer to bankruptcy.

Russia now wants 120bn roubles ($4.1bn; £2.3bn) in unpaid taxes, compared with an earlier demand of 98bn roubles.

Yukos already has missed a deadline to pay back $3.4bn owed for the 2000 tax year and has been staving off attempts by the government to sell a key unit.

Company spokesman Hugo Erikssen called the increase "spurious".

No access

On Thursday, a court agreed to freeze the bank accounts of a number of Yukos subsidiaries, increasing the already intense pressure on a company that accounts for about 20% of Russia's oil output.

Without access to the funds, the company predicts that it is only a matter of weeks before it is unable to pay wages, suppliers and sub-contractors.

Yukos said that court's decision all but paralyses the company and is another attempt by the state to obstruct the payment of the outstanding tax bills.

Should the debt not be settled, the state is likely to seize control of, and subsequently sell off, key oil production unit Yuganskneftegas, analysts said.

The deadline for Yukos to pay back taxes for the 2000 financial year passed earlier this week.

Tick, tock

Many Russians believe the case against Yukos stems from a falling out between ex-chief Mikhail Khodorkovsky and the Kremlin.

Mr Khodorkovsky, who had started to become more active in political life, and a key business associate are on trial for fraud and tax evasion.

The struggle for control of Yukos has raised concerns that oil production will suffer, pushing up global crude prices.

While analysts are less than optimistic about the outlook for the company, they expect crude output to keep going.

"Yukos yesterday claimed that freezing its subsidiaries' accounts would completely paralyze operations and lead to a halt in production," said Cristopher Weafer of Alfa Bank.

"Though logically this would appear to be the case, we do not see any possibility for the authorities to allow any major interruption in the production or exports of the country's largest crude producer.

"The effects of a production halt on the country as a whole would be much too detrimental."

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Russian Authorities Say Yukos Owes $4 Billion More in Taxes

Russia's Tax Ministry says the country's giant oil firm Yukos owes more than $4 billion dollars in back taxes for the year 2001.

The new assessment is in addition to $3.4 billion in back taxes for the year 2000 the company is struggling to pay.

Tax officials say Yukos traded oil through subsidiaries that were registered in regions of the country where taxes are low.

Yukos warned Thursday that it may have to halt production because of a Moscow court decision placing a freeze on some of its subsidiaries' accounts.

Former Yukos chief Mikhail Khodorkovsky is on trial on charges of tax fraud, which he calls retaliation for his support of the political opposition. The Kremlin denies this.

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End of the line for Yukos

Yukos warned yesterday that it is no longer able to pay staff wages and that oil production could stop any day.

The latest problems to beset Russia's biggest oil company sent the price of crude racing ahead again on the global markets.

Yukos said prosecutors wanted to seize 76bn roubles ($2.6bn) from the accounts of Yukos subsidiaries as part of the process of resolving a larger tax bill for 2000.

This follows a Moscow district court case on Tuesday during which prosecutors accused Yukos accountant Irena Golub of concealing funds "acquired by criminal means" on the accounts of Yukos subsidiaries.

Yukos said the court action was paralysing company operations "because it makes it impossible for its subsidiaries not only to pay suppliers, vendors and contractors, but also to pay wages to its employees".

The trouble further unnerved jumpy crude markets, sending the price of Nymex October oil up by 60 cents to $44.60 a barrel. At one point on Wednesday the price of oil jumped by $2 after United States government data unexpectedly showed that crude stocks fell last week. "The Yukos factor is helping to push prices higher," an industry expert in New York confirmed.

The dispute over tax at the Russian oil group is seen by some as part of a campaign by the Kremlin to undermine Yukos and its jailed founder, Mikhail Khodorkovsky, for dabbling in politics. But the Russian public supports efforts to crack down on the oligarchs they believe became wealthy at their country's expense.

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Yukos faces oil production halt

Yukos, the Russian oil giant, could be forced to halt production because of a new court order, the company has said.

Reports said a court had agreed to a request from prosecutors that would prevent the company from accessing its bank accounts.

Yukos faces a demand for billions of dollars in back taxes and has said the bill could push it into bankruptcy.

The latest reports have reignited world oil prices, with New York light crude up 42 cents at $44.42 (£24) per barrel.

Oil rallies

London Brent gained 48 cents to $41.95 per barrel.

The new threat of Russian supply disruptions comes hot on the heels of US inventory figures showing a sharp fall in crude stockpiles, heightening fears of shortages in the run-up to the peak winter demand season.

Oil prices have risen by more than 36% so far this year.

The Moscow court ruling means prosecutors will be able to lay claim to 76bn roubles ($2.6bn; £1.45bn) in bank accounts belonging to Yukos, according to Reuters.

Yukos shares fell 4% on the latest news.

The company said the latest court ruling effectively froze all its bank accounts, halting payments to workers and preventing it from settling accounts.

"The arrest paralyses the productive capacity of Yukos," the company said in a statement.

"Fuel delivery in more than 40 regions of the Russian Federation will be threatened."

It also warned that the court decision could trigger social unrest among people who relied on the company for their livelihoods.

The deadline for Yukos to pay $3.4bn in back taxes for the 2000 financial year passed earlier this week.

Many Russians believe the case against Yukos stems from a falling out between ex-chief Mikhail Khodorkovsky and the Kremlin.

Mr Khodorkovsky and a key business associate are on trial for fraud and tax evasion.


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Yukos warns production could halt after accounts frozen

Yukos said its accounts had been seized by the state and that it could be forced to halt production in comments that stoked world oil prices and seemed to ring the death knell for Russia's troubled oil titan.

Russia's number one oil producer said it may go to world courts to save the company founded by Mikhail Khodorkovsky -- the country's richest man who stood in brazen opposition to President Vladimir Putin and who now sits in jail.

Yukos shares dipped two percent to 3.97 dollars on just nine trades on the RTS dollar-denominated exchange amid investor sentiment that the company -- once seen as a Western investor darling -- has finally lost its battle with the state for good.

The company said in a statement that a Moscow court Tuesday granted a prosecutor's request "to seize all resources in accounts belonging to the main producing divisions of the Yukos oil company."

It was already facing a crushing 3.4 billion dollar tax bill for 2000 and its main subsidiary Yuganskneftegaz has been put up for auction amid speculation that it may go to state-linked rival at a cut-rate price.

Yukos produced about 1.7 million barrels of oil per day -- nearly as much as the current maximum output of Iraq and Yugansk accounts for about 60 percent of that figure.

But Yukos said it had been delivered an "astounding" new blow when prosecutors accused the head of its accounting firm of "obtaining by crime" 2.6 billion dollars and illegally keeping the money on Yukos subsidiaries' accounts.

Those have now been frozen.

Analysts said the charges should dramatically lower the valuation of Yugansk which is expected to be announced in about four weeks.

"The arrest of accounts of Yukos oil companies also denies them the ability to pay taxes and other mandatory payments to the budget which seriously impacts the financial standing of the regions of the company's main operations," the Yukos statement said.

It accused prosecutors of leading a campaign to bankrupt the giant so that it can fall into state hands and profit a group of Kremlin hawks who served in the security services and lost out in lucrative but murky privatization deals of the 1990s.

"Every legal recourse will be taken both in Russian and international courts in order to protect the company and thousands of its employees from arbitrary actions by certain officials," Yukos said.

Investors fear the fate of Yukos may be the test case of whether private property is safe under a Putin regime that has relied on a heavy role for the state.

But one analyst said that a shutdown of production was unlikely because it would discredit Putin on the world arena.

"Any production halt would be so embarrassing for the president after his clear commitment on the issue earlier this week that the company will be allowed access to cash to cover essential operating costs," said Alfa Bank analyst Christopher Weafer.

"The fact that Yukos was making greater headway in paying off the 2000 tax bill is simply not playing by the rules," he said. Yukos said it paid two billion of the 3.4 billion dollar bill by September 1.

Concern about a possible halt in production by Yukos was one factor pushing world oil prices to record high levels in August.

Russian authorities then assured the oil market that Russian oil production would continue to increase.

The price of benchmark Brent North Sea crude oil for delivery in October rose 73 cents to 42.20 dollars a barrel in afternoon trading in London.

New York's reference light sweet crude for October delivery gained 60 cents to 44.60 dollars in pre-opening electronic trading.

"It seems that jitters about Yukos have caused the surge," said one trader in London.

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Yukos Says Production in Imminent Danger

Russia's largest oil producer, ensnared in a debilitating battle over a huge back taxes bill, said Thursday it is unable to pay wages and that production is in imminent danger of stopping.

The statement by the Yukos oil company followed a court decision Tuesday that froze accounts in its subsidiary companies. "The account freeze paralyzes the production activities of Yukos," it said.

Analysts doubted, however, that President Vladimir Putin would allow a fall in crude output in an industry that accounts for much of Russia's budget intake and has spurred the country's recent economic growth.

A Yukos spokesman for the company said that prosecutors were seeking to seize $2.6 billion from the accounts of Yukos subsidiaries, as part of resolving a 2000 back taxes bill for $3.4 billion.

A spokeswoman for core subsidiary Yuganskneftegaz said that so far operations at the company were continuing as normal, Dow Jones Newswires reported. Yukos accounts for about 2 percent of global oil production and previous concerns about supply interruptions have contributed to high world oil prices.

Contracts for light crude for October delivery jumped $1.10 to $45.10 a barrel in midday trading on the New York Mercantile Exchange.

The 2000 tax bill is part of a web of legal actions against Yukos and its jailed billionaire owner, Mikhail Khodorkovsky, that observers see as Kremlin-orchestrated punishment for his growing clout and dabbling in politics.

Observers expect the bill to eventually rise to some $12 billion for the 2000-2003 period. President Vladimir Putin has cast the cases as part of an effort to collect taxes and crack down on murky business practices dating back to the 1990s.

With its bank accounts frozen and an order preventing it from selling non-core assets to raise funds, Yukos managers have repeatedly warned that they would not be able to pay the bill in time.

However, the Yukos statement said that the company has so far paid $2 billion of the claim and would have settled the rest of the tax claim by the end of September.

The prosecutor's claim targets Yukos' chief accountant, Irena Golub, was responsible for concealing funds "acquired by criminal means" on the accounts of Yukos' subsidiaries, the statement said.

Three accounts apiece in the Tomskneft and Yuganskneftegaz subsidiaries held with Credit Lyonnais Rusbank, were frozen, ITAR-Tass reported, citing the decision Tuesday by Moscow's Basmanny district court. The subsidiaries underpaid taxes by $1.6 billion in 2000 and $989 million in 2001, the ruling said.

Yukos alleged that the decision was aimed to prevent it from making complete payment by the end of September, which would have interfered with what it claimed was the bailiffs' goal of selling off Yuganskneftegaz as collateral for the outstanding sum. Yuganskneftegaz accounts for 60 percent of Yukos' production.

Yuganskneftegaz is currently being evaluated by Western investment bank Dresdner Kleinwort Wasserstein, whose appointment was seen as a positive move by analysts who feared that the company would be sold off into Kremlin friendly hands at a fire sale price.

The account lock-down at the subsidiaries would make further payments impossible, thus expediting the sale of Yuganskneftegaz, the company said.

Ronald Smith, oil and gas analyst with Renaissance Capital noted that while bailiffs had previously frozen accounts at Yukos' main company they had still allowed the company access to half of its funds to keep operations running.

"I can't see that Putin would let the company to stop pumping," Smith said.

Yukos stock was down 2.22 percent by midday on Moscow's RTS exchange.


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Yukos Says Output May Stop; Russia Seeks $2.6 Billion

OAO Yukos Oil Co., Russia's largest oil exporter, said it may have to halt output after Moscow prosecutors expanded the freeze on the oil producer's accounts in pursuit of a $3.4 billion tax bill.

Yukos said it may struggle to pay for operations after a Moscow court froze the accounts of two units that extract 80 percent of Yukos's crude in pursuit of 76 billion rubles ($2.6 billion) of the 99 billion ruble tax bill. The Justice Ministry in July froze Yukos accounts that handle half the company's cash flows of $1.8 billion a month.

``The Yukos case is getting more serious as the authorities start going to units, not stopping at the parent company,'' said Ron Smith, an analyst at Moscow brokerage Renaissance Capital. ``If they don't let the units operate, output may in fact be halted.''

Investigations into Yukos and its largest owner, Mikhail Khodorkovsky, have driven up world oil prices and raised concern about property rights under President Vladimir Putin, prompting capital outflows. Concern Yukos's output might be disrupted helped push up crude oil futures in New York to a record $49.40 a barrel on Aug. 20, a 55 percent gain from a year earlier. The jump in prices helped to slow U.S. economic growth in the second quarter.

Yukos shares were down 2.37 rubles, or 2 percent, at 117.50 rubles at 6:13 p.m. in Moscow, after sliding by as much as 4.7 percent. They have lost 72 percent since Oct. 25, when Russia arrested Khodorkovsky, 41, on charges of fraud and tax evasion.

Crude oil for October delivery jumped as much as 1.8 percent to $44.79 a barrel in electronic trading on the New York Mercantile Exchange, the highest in a week.

`Complete Blockage'

The Basmanny District Court in Moscow on Tuesday supported prosecutors' requests to freeze the accounts of Yuganskneftegaz and Tomskneft, according to court documents obtained by Bloomberg.

The court's actions ``resulted in a compete blockage of the accounts of Yukos's subsidiaries and has stopped them being able to carry out any settlements including payment of wages, taxes, and operating expenses,'' Yukos said in its statement today.

The accounts were frozen in relation to a tax evasion case against Irina Golub, general manager of Yukos-FBC LLC, Yukos said.

The press service at the Prosecutor General's Office declined to comment.

Yukos last week cut its oil production target and capital spending for this year, the first sign its struggles to meet a $3.4 billion tax bill may reduce Russian oil supplies.

President Putin and Sergei Oganesyan, the energy regulator, said this week Russian oil production is exceeding the most optimistic forecasts. The country's output has surpassed that of Saudi Arabia, which pumped 9.36 million barrels a day in July and 8.5 million barrels a day in the first five months.

Russia's leader on Tuesday reassured German Chancellor Gerhard Schroeder and French President Jacques Chirac that his country's oil companies will increase output, at a meeting of the three leaders in Russia's Black Sea resort of Sochi.

``I was very pleased by the news that Russia will increase its oil production,'' Schroeder said Tuesday. ``We had real fears, if not for the present moment, that the world economy could suffer through oil prices.''

A week earlier, on Aug. 23, Putin, 51, told U.S. President George W. Bush, 58, over the telephone that Russian companies boosted production to help alleviate rising oil prices.

Shares Plunge

Khodorkovsky, who has remained behind bars since the arrest and is now facing trial, denies the charges as political.

Russia's Justice Ministry on July 20 said it's preparing to sell Yuganskneftegaz, which pumps about 60 percent of Yukos's oil, to settle the parent company's tax bill. The ministry on Aug. 12 said it Yuganskneftegaz will be valued by Dresdner Kleinwort Wasserstein.

Yukos said in July it may go bankrupt and halt production as it struggles to pay the 2000 tax bill, which the company calls politically motivated.

Taxes

A court has ordered Yukos to pay $3.4 billion in taxes and penalties for 2000. Yukos has paid $2 billion as of Sept. 1, according to today's company statement. It said it will seek to pay the bill in full to prevent destruction of the company.

The government's $3.4 billion tax claim against Yukos for 2001 is yet to be considered by a court.

Yukos's production rose 8.5 percent in the first eight months of 2004 from a year earlier, averaging 1.74 million barrels a day in August, the Russian Energy and Industry Ministry said. That compares to 1.73 million barrels a day the company was producing in December last year.

``Yukos increased production significantly in the second half of 2003,'' Smith said. ``Now, they aren't yet losing, but they aren't gaining either.''

Russia boosted crude oil output 9.9 percent in the first eight months of 2004 to 302.6 million tons, (9.1 million barrels a day). In August, Russia extracted 39.6 million tons of crude, an average of 9.37 million barrels a day.

Yukos employs a total of about 50,000 people at Yuganskneftegaz and Tomskneft, Yukos spokesman Alexander Shadrin said.

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Clock Ticks Down for Yukos

The investment bank hired by the Justice Ministry to put a price tag on Yukos' main production unit will finish its work in four weeks, a person close to the process told The Moscow Times.

Yukos drifted into uncharted waters after a deadline expired Tuesday to pay $3.4 billion in back taxes with $1.4 billion still outstanding. The oil giant is now one step closer to losing its most valuable assets as authorities pursue additional tax claims and investment bank Dresdner Kleinwort Wasserstein prices Yuganskneftegaz for sale.

The valuation of Yuganskneftegaz, which accounts for about 60 percent of Yukos' total production, is eagerly awaited by a market nervous that the government will sell the asset to a more loyal company for a fraction of its fair value.

"The valuation is important, as the assets will probably not be seized from Yukos until it is done," said Sergei Suverov, head of equity research at Bank Zenit. "The authorities will bring additional tax demands against Yuganskneftegaz and Yukos."

The source said the valuation will not be a single figure, but a range.

Neither the Justice Ministry nor Dresdner, which was hired by the government last month, would comment.

If the valuation of Yuganskneftegaz takes until the end of September, the government will avoid spoiling the mood for what is expected to be the single biggest privatization auction in Russian history -- the Sept. 29 tender for 7.6 percent of LUKoil, Yukos' arch rival.


U.S. oil major ConocoPhillips emerged as the front-runner for the stake after its CEO, James Mulva, met with LUKoil chief Vagit Alekperov and President Vladimir Putin in July.

About $2 billion of the $3.4 billion claim for the year 2000 has been collected, a source close to Yukos said Tuesday. In addition, the Federal Tax Service says it is owed another $3.4 billion for 2001 and has started tax probes for subsequent years. Prosecutors last week confiscated documents relating to 2003 and 2004, raising the prospect of additional bills, possibly even against Yuganskneftegaz and other production units.

In all, the total bill could hit $12 billion, according to some estimates, including those of Bank Zenit.

Putin and Yukos founder Mikhail Khodorkovsky are locked in a battle that has rocked world oil markets, provoked concern in capitals from Washington to Beijing, and undermined confidence in Russia's economy.

Dresdner, a unit of Germany's Allianz Group, has close links with top Kremlin officials -- including Putin, who was instrumental in helping BNP-Dresdner Bank move into St. Petersburg in 1993, when he headed the city's committee for external relations.

German banks are among Yukos' creditors, and German Chancellor Gerhard SchrЪder reportedly planned to raise the issue with Putin during their talks in the Black Sea resort city of Sochi on Tuesday, which also included French President Jacques Chirac.

Khodorkovsky, who was arrested last October, is on trial for tax evasion, fraud and running an organized criminal group. His lawyers say the charges are politically motivated.

Yukos has warned of bankruptcy and production cuts over a cash crunch caused by the freeze that has been placed on its accounts and assets.

The company says Yuganskneftegaz should be considered a "core asset," which would put it at the end of the list of property to be liquidated to settle the tax claims, the biggest in the country's history.

But Justice Ministry statements indicate that it considers Yukos' shares in Yuganskneftegaz to be "noncore" assets. Similarly, court marshals have refused to accept Yukos' stake in failed merger partner Sibneft as collateral for the tax debt, indicating that the Kremlin has its sights on Yuganskneftegaz.

Leading U.S. investment bank Goldman Sachs has said Yuganskneftegaz is worth about $20 billion, but analysts say tax claims and threatened legal action against potential buyers could cut the valuation of the subsidiary.

With the sale of the LUKoil stake looming, officials may want to delay spooking the market with a low valuation of Yuganskneftegaz. Kirill Tomashchuk, acting head of the Federal Property Fund, said the sale could be delayed if LUKoil shares tumble.

"The auction could be canceled if LUKoil shares were suddenly to drop considerably below the market price," Tomashchuk told reporters last week. "That could happen as a result of a macroeconomic or political factor. And I think by now the Yukos affair can be called a political factor."

The Kremlin has widely been viewed as taking a more hands-on role in the oil sector, evidenced most recently by the July appointment of a top Putin aid, Igor Sechin, to the chairmanship of state-owned Rosneft.

"The state wants Yuganskneftegaz, but we don't know the mechanism. Outright confiscation is unlikely, so some sort of consortium with Rosneft and Surgutneftegaz could gain control," said Chris Weafer, chief strategist at Alfa Bank.

"We will have a break until the valuation of Yuganskneftegaz and the additional tax bills are in place, as long as the bailiffs are reined in," Weafer said.

Located in western Siberia, Yuganskneftegaz pumps about 1 million barrels of oil per day.

Yukos' other two main production units, Samaraneftegaz and Tomskneft, are also being investigated over 2002 tax payments, though those units may be left inside the company to appease thousands of minority Yukos shareholders, Weafer said.

Others analysts, such as Suverov, believe Yukos will end up losing all of its major assets to reduce the influence of Group Menatep, the holding company that controls Yukos.

Menatep has warned that if the oil giant's assets are sold off cheaply, the buyers may face legal action.

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