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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