Shuvalov: Yukos Case Not the Last

By Guy Faulconbridge
Staff Writer The unrelenting legal assault on Yukos is no exception, and other oil majors should expect tax probes, too, a top aide to President Vladimir Putin said Thursday.

"We must probe everyone, everyone. And if I was responsible for tax discipline -- against the background of Yukos -- I would probe all the other oil companies, too," the head of the presidential Expert Department, Igor Shuvalov, said on the sidelines of an investors' conference.

"This is only the start of the road in relation to other taxpayers. Many oil companies used schemes that they call 'tax optimization.' Where it was illegal they will have to pay in full," he told investors.

The onslaught against Yukos has tarnished Russia's investment image, helped send oil prices soaring and shaken confidence, as officials put out chaotic signals about the future of the country's biggest oil exporter.

Shuvalov said that multinational oil companies are scrambling to sink big money into the country, despite the Yukos affair. Still, a widening of probes against other oil majors has been a nightmare scenario for investors since the government launched its multibillion dollar tax case against Yukos last year.

Shares in leading oil companies -- LUKoil, Surgut and Sibneft -- fell on Thursday. Sibneft took the biggest hit, dropping 3.6 percent on the MICEX, while Yukos stock rose 1.4 percent.

Some investors were unfazed.

"I think there will be changes in the way companies pay taxes but I don't see another Yukos. It is logical for a senior official to say that everyone should pay taxes and that this is not all about one company -- Yukos," said Jacques von Polier, who manages $200 million in Russian shares at Atria Advisors.

"Other oligarch groups have changed and I don't think there is going to be another Yukos. A lot of the problem with Yukos is that [former CEO Mikhail] Khodorkovsky didn't negotiate."

Yukos says it is teetering on the brink of bankruptcy following a freeze on its accounts and towering demands for back taxes and penalties.

The company is straddled with claims for taxes and fines totaling $7.5 billion for 2000 and 2001.

The Federal Tax Service is considering claims for 2002 and may announce them soon, a Yukos official said Thursday, speaking on the condition of anonymity.

Yukos had paid about $2.8 billion of the 2000 bill by Oct. 26, the source said. Another $300 million in cash has been freed up after some accounts were unfrozen, the official said, and could be used to pay for 2000.

The full 2000 claim will be paid off in the next few weeks, the official said, and $400 million has already gone toward paying off the 2001 bill.

The Court Marshals Service, however, has said it wants the government to auction off shares in Yukos' core production unit, Yuganskneftegaz, to retrieve unpaid taxes. Media have reported that the starting price could be as low as $4 billion, less than half of the lowest valuation of the unit made by international investment bank Dresdner Kleinwort Wasserstein.

Presidential economic adviser Andrei Illarionov told the same conference, organized by Interfax and Chatham House, that Yugansk should not be sold for less than the annual value of its production, or $17 billion, Interfax reported.

Shuvalov said that Yukos must pay the tax claims and that the Kremlin position was "to preserve the company as a corporation." He said it was not a fact that Yugansk will be sold but that if it comes to an auction, Yugansk should be sold in a transparent way.

Shuvalov said he has not had any discussions about Gazprom buying Yugansk and that Gazprom should complete its planned merger with state-owned Rosneft before considering the Yukos unit.

As the pressure mounts on the oil major, bankruptcy may be the best thing for the company, Yukos CFO Bruce Misamore said in an interview with Le Monde on Thursday.

"In order to ensure the future of the company, bankruptcy is perhaps the best solution, in the sense that it would allow the involvement of all the group's creditors in an ordered and fair fashion," Misamore said, the paper reported.

"Yukos is trying to find a solution with the authorities. We talk, they listen, but they never respond to our proposals to try and resolve this crisis. The attack against Yukos is 100 percent political."

Misamore said other companies had optimized taxes. Yukos is accused of selling oil through affiliated companies to reduce its taxes.

"Other oil companies have utilized fiscal optimization schemes identical to ours without having any problems," Misamore said. In a presentation Misamore made during the summer, he claimed that from 2001 to 2003, Yukos had paid more tax per ton of crude than the industry average.

In response to reporters' questions, Shuvalov said that one company that paid its taxes properly during the 1990s was gas giant Gazprom.

The gas giant is being built up to play a major global role, Shuvalov said.

"We have a massive company -- the biggest in the country -- which could become one of the leading corporations in the world energy sector," he said.

"It is time to compete on a world level. The merger of Gazprom and Rosneft is seen as the creation of a player that can compete on a world level."

Shuvalov said that the merger with Rosneft should be concluded before other assets are added to Gazprom and that the energy behemoth should obey anti-monopoly rules.

"There is the Yukos affair and everyone -- politicians and investors -- is looking at it to see how it will end," Shuvalov said. "One of my colleagues said to me not long ago: However it ends, nothing positive will have come of it. We understand that."

Staff Writer Catherine Belton contributed to this report.

(From The Moscow Times, 29.10.2004)