Russia Accused of Theft as YUKOS Oil Auction Set

Russia Accused of Theft as YUKOS Oil Auction Set

Fri Nov 19, 2004 01:23 PM ET

By Dmitry Zhdannikov

MOSCOW (Reuters) - Russia pressed ahead on Friday with the last step in the destruction of YUKOS, saying it will auction the oil major's main Siberian unit on Dec. 19 for $8.65 billion and hit it with a new tax claim.

YUKOS denounced the sale of Yuganskneftegaz as state-sponsored theft, designed to strip its main owner Mikhail Khodorkovsky -- on trial for tax evasion and fraud and facing up to 10 years in prison -- of his main asset.

The sale would mark a climax in a 16-month-old battle between the Kremlin and the politically ambitious tycoon which has damaged investor conference in Russia and helped push world oil prices to historic highs.

"YUKOS as we know it can never look the same again," said Adam Landes from Renaissance Capital. "We have reached a point of no return for the company and the Kremlin."

President Vladimir Putin's economic adviser Andrei Illarionov told Reuters that "if the sale goes ahead, it can only be described in two words: 'daylight robbery'."

Illarionov, who is known for outbursts and once described the Kyoto environmental treaty as "economic Auschwitz" for Russia, said the sale was unnecessary as YUKOS was paying its tax bills.

Analysts said the price, at the low end of an independent valuation but above the most pessimistic expectations, would still allow the state to sell more YUKOS assets later to recover its tax debts, which were jacked up to $24.5 billion on Friday.

They tipped gas monopoly Gazprom as front-runner to buy the unit, while bankers and Western executives said foreigners, although allowed to bid, were likely to be deterred by the legal and tax risks that a Yugansk purchase would entail.

YUKOS produces a fifth of Russian oil or 1.7 million barrels per day and Yugansk is responsible for 60 percent of its output.

"The starting price bears no resemblance to the true value of Yugansk, one of the world's premier oil producing firms, and amounts to theft of YUKOS assets," said YUKOS CEO Steven Theede.

"What we are witnessing is, simply put, a government organized theft to settle a political score."

"We still believe that a Russian company will be a front-runner at the auction, most likely Gazprom, and that more assets could be sold afterwards," said Valery Nesterov from Troika Dialog brokerage.

State-controlled Gazprom, which previously said it was not interested in Yugansk, gave a non-committal comment on Friday. "The issue of participating in the auction is not a subject of discussions for Gazprom," spokesman Sergei Kupriyanov said.

Russia's No.4 oil firm Surgut, also tipped as a potential bidder, declined to comment.

"I think there will be no bids," said Vadim Mitroshin from CSFB. "No company in the world would bid for a unit whose tax debt is still unclear. Then there could be another auction with a lower starting price."

YUKOS's other key assets include two producing units in Siberia and the Volga region as well as five refineries in Russia and one in Lithuania.

The auction will come one day before a YUKOS shareholders meeting to consider bankruptcy or liquidation on Dec. 20.

Khodorkovsky said in a statement on Friday he and his allies were now transferring shares to YUKOS management but did not elaborate. (To read the statement, click on or).

Bidders must place a huge returnable deposit of $1.73 billion in a move seen to prevent the current owners bidding up the price without intending to buy.

"Nobody is going to put down 1.7 billion dollars of deposit unless they get sovereign guarantees. And nobody is going to bid for Yugansk unless they get a Kremlin agreement that they are not going to hit Yugansk with further taxes," said Thames River Capital's Taylor.