E.ON May Help Gazprom's Yugansk Bid

By Guy Faulconbridge
Staff Writer

E.ON, Germany's biggest utility, may bid for Yukos' main production unit on behalf of Gazprom as the government sells off part of the country's biggest oil exporter, Interfax reported Tuesday, citing an unnamed official.

"Gazprom doesn't have the money for such a big purchase, so E.ON will be here to act in the interests of the gas monopoly," the government official was quoted as saying.

Deputy Economic Development and Trade Minister Andrei Sharonov, who helps oversee the state's biggest monopolies, told Interfax he had information that Gazprom-linked companies could bid for shares in Yuganskneftegaz, which produces 60 percent of Yukos' oil.

Sharonov would neither confirm nor deny the E.ON report. E.ON spokesman Christian Drepper declined to comment, as did a spokesman for Yukos.

Gazprom spokesman Sergei Kupriyanov said he had no idea where the government official was getting his information. He said Gazprom CEO Alexei Miller was set to hold meetings with E.ON in Germany on Wednesday, but as far as he was aware, they were not scheduled to discuss joint ventures in the oil sector, only about gas and electricity cooperation.

If true, E.ON's participation in the sale of Yukos' prize asset could help the Kremlin defuse criticism about selling off Yugansk, while keeping the production unit under the influence of Gazprom, which is swiftly gaining massive clout over the country's entire energy sector.

"This could be the ideal outcome for the government, as E.ON has an international reputation and has sufficient money," said Sergei Suverov, head of equity research at Bank Zenit. "E.ON is not big in the oil sector, but if it does bid, it could possibly swap these assets at a later date with Gazprom."

Yukos shares on MICEX fell 10 percent on the report of E.ON involvement in the sale, while Gazprom shares rose 4 percent to 76.43 rubles, the highest closing price ever. The chief executives of Gazprom, E.ON and E.ON Ruhrgas, which owns a 6.4 percent stake in Gazprom, met in Moscow on Oct. 7.

Confusion surrounds the terms of the government's sale of Yugansk after Russian media reports that it may be sold off for as little as $3.75 billion. That is a little over one-third of the unit's lowest possible valuation given by Dresdner Kleinwort Wasserstein, an investment bank hired by the Justice Ministry in August to value the unit.

Yukos has hired J.P. Morgan to value Yugansk, but the valuation probably will not differ much from Dresdner's, Prime-Tass reported, citing a source close to J.P. Morgan. Dresdner valued Yugansk, which produces 1 million barrels of oil per day, at $14.7 billion to $17.3 billion, after deducting liabilities and a $951 million tax claim.

As the first anniversary of the arrest of Yukos owner Mikhail Khodorkovsky looms, the company's assets are on the chopping block. The politically charged battle between Khodorkovsky and President Vladimir Putin has led to billions of dollars of back tax claims against Yukos, disrupted oil exports to China and has tarnished the country's investment image at home and abroad as the Kremlin sends a chaotic array of signals about its intentions.

Yukos shareholders, who include some of the world's biggest money managers, are trying to work out whether the oil company will be divested of all its assets, as the Kremlin tries to wrest control of Yukos from its majority shareholder, Khodorkovsky's Group Menatep.

"I'm not a believer in Yugansk going for $3 billion," said Adam Landes, oil and gas analyst with Renaissance Capital. "I think this is just a bunch of apparatchiks applying pressure at the appropriate moment."

"Gazprom and E.ON would represent a powerful combination that could put other people off from taking part in the auction. It could be a further stage in the bluffing game, but I don't see why E.ON should want to get involved."

Miller met earlier this month with his counterparts at E.ON and Ruhrgas, Wulf Bernotat and Burckhard Bergmann, to discuss gas production, electricity generation and the transportation of gas to Europe.

E.ON is Europe's second-largest utility, while Gazprom provides about one-quarter of Europe's gas. E.ON and its shareholders could well be wary of buying parts of Russia's biggest oil exporter in such a highly charged situation.

"It makes no sense," said Steven Dashevsky, head of research at Aton brokerage. "E.ON is not going to do anything on behalf of anyone."

The report appeared to surprise Menatep, which has threatened litigation against buyers of Yugansk.

"I would be very surprised if E.ON or anyone else outside Russia would bid for Yugansk," Tim Osborne, a Menatep director, said by telephone. "If it goes to auction and if E.ON bids and wins, they are buying themselves a whole lot of future litigation. I can't believe any non-Russian company is going to bid for this when it's so clearly being sold at a knockdown price under an illegal process."

The Federal Property Fund is preparing to sell Yugansk after the Justice Ministry's Court Marshals Service demanded shares in the unit be sold to cover tax debts. The sale could be held as early as Nov. 22 and would require a public announcement of the terms at least a month before.

Yukos is facing billions of dollars in back taxes and fines, even after paying about $3 billion of a $3.4 billion bill for 2000. The Federal Tax Service has demanded another $4.1 billion for 2001 and is considering further claims for 2002 and 2003.

As the prospect of a fire sale increases, Moody's Investors Service cut Yukos' debt ratings and said it could downgrade the company further. Moody's cut Yukos' senior implied rating to B2 from B1, and the issuer rating to B3 from B2. "It now appears increasingly likely, in Moody's opinion, that Yukos will sell or will be forced to sell specific assets to meet the outstanding tax claims," Moody's said in a statement.

Sharonov also indicated that Yukos could lose other assets if the sale of Yugansk covers only back tax claims for 2001. "If the money gained covers only the debts for 2001, then the potential risks on the debts for 2002 and 2003, of course, remain," Sharonov said, Interfax reported. He said Yukos debts for 2002 and 2003 are "still an open question," without elaborating.

Such an outcome raises the possibility of Yukos' other production units being sold to cover tax claims for other years, if Yugansk is sold off at a massive discount.

Finance Minister Alexei Kudrin admitted in an interview published in Itogi on Tuesday that the stand-off over Yukos could lead to disruptions to oil exports from Yukos if a worst-case scenario played out.

(From The Moscow Times 20.10.2004)