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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