- The Washington Times - Sunday, December 19, 2004

MOSCOW — A little-known group bought the main production unit of Russia’s largest oil producer, Yukos, at auction for $9.3 billion yesterday, gaining control of one of Russia’s most prized assets for half of what foreign auditors say it is worth.

The sale of Yuganskneftegaz reduces Yukos to a shadow of its former self, one of the heaviest blows to a company that has been the target of a longtime government campaign. The government says it is trying to collect $28 billion in back taxes, while Yukos officials say the Kremlin is punishing it for the politics of its now-jailed founder.

Yukos pumps nearly one-fifth of all of Russia’s oil and supplies 2 percent of the world’s consumption. The auctioned unit produced 60 percent of Yukos’ output.

Foreign auditors have said the West Siberian unit was worth about $18 billion, or nearly twice the $9.3 billion for which it sold. Yukos executives said the unit was worth up to $30 billion.

Virtually nothing is known about the winner except that it was registered in the city of Tver, in western Russia, and had made its application only after a Houston court issued an injunction that caused Western banks to freeze financing for a Gazprom bid. Gazprom, the state-controlled natural gas behemoth, was seen as the Kremlin’s favorite to snap up the unit.

U.S. bankruptcy Judge Letitia Clark granted Yukos’ request Thursday for a temporary restraining order delaying for 10 days the auction of Yuganskneftegaz.

After that decision, the banks — including Deutsche Bank, ABN Amro, BNP Paribas and Dresdner Kleinwort Wasserstein — froze between $10 billion and $13 billion they had pledged to loan Gazprom for its bid, Russian and other news reports said Friday. Russia said the American court’s injunction was irrelevant.

Observers say Baikalfinansgroup could be a vehicle for Gazprom, with alternative sources of funding.

Stephen Dashevsky, a leading analyst for Russia’s Aton brokerage, said the winner was likely affiliated with Gazprom.

Gazprom said yesterday that neither it nor Gazpromneft — its oil component, which was officially making the firm’s bid — had any relation to the winner, the Interfax news agency reported. Other top Russian oil producers — Lukoil, Surgutnefetegaz and TNK-BP, also have denied any connection to the auction’s winner.

After the auction, Alexander Buksman, the head of Moscow’s branch of the Justice Ministry, told reporters that if the winner fails to deliver the money within two weeks, the state could take over Yuganskneftegaz.

OAO Gazprom is the largest natural gas company in the world, with one-quarter of all gas reserves. A union of Gazprom and Yukos would create one of the world’s energy titans.

At the auction, Gazpromneft’s representatives didn’t move when Baikalfinansgroup offered to pay $9.3 billion for the stock, just a fraction over the $8.8 billion starting price.

The ITAR-Tass news agency reported that Baikalfinansgroup’s registration address — in the central Russian city of Tver — corresponded with that of one of Gazprom’s structures. But the agency later reported from Tver that the address houses only a food store, a cafe and a mobile phone shop.

The Russian telephone reference service said it knows of only one company listed at the address: OOO Tverneftemash, a manufacturer of oil and gas field equipment. The chief executive of Tverneftemash was quoted yesterday as saying that his company had been bought by ZAO Gazpromgeocomservice, a larger company in the same sector.

Despite its name and a logo that resembles that of Gazprom, there was no evidence to connect the companies.

Top Russian officials, including the prime minister and foreign minister, said the Houston court ruling was irrelevant on Russian soil. The government says the auction will go toward helping pay off Yukos’ tax debt.

Yukos spokesman Alexander Shadrin said the sale was illegal under Russian and international law and that the winner “has bought itself a headache.”

“Whoever stands behind the winner and gave it financial help have done irreparable damage to their reputation and subjected their business to significant legal risks,” Mr. Shadrin said.

Igor Yurgens, a deputy head of the Russian Union of Industrialists and Entrepreneurs, a leading advocacy group for Russia’s big businesses, told Echo of Moscow radio that the fact that the top oil producer was bought by a little known bidder was “unbecoming” for Russia.

Russia jailed Yukos’ founder and former chief executive, Mikhail Khodorkovsky, 14 months ago, and he is being tried for fraud and tax evasion. Yukos management and outside observers say the tax claims and the jailing of Mr. Khodorkovsky are aimed at punishing the tycoon for his criticism of Kremlin policy and his perceived political ambitions and a way to reassert state control over the oil sector.

Russian President Vladimir Putin characterized the effort as a crackdown on corruption and dubious accounting.

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