- The Washington Times - Tuesday, August 1, 2006

MOSCOW (AP) — The Russian oil company OAO Yukos was declared bankrupt yesterday, marking the end of a politically charged, three-year back-tax campaign and opening the way for the Kremlin to further tighten its grip on the strategically vital energy sector.

Arbitration Court Judge Pavel Markov pronounced the oil producer that was once Russia’s biggest bankrupt, and ruled that the liquidation of its remaining assets — including production capacity of 600,000 barrels per day — should begin.

“It is the death sentence for the company,” Yukos lawyer Drew Holiner said.

The ruling was a muted epilogue that followed the conviction of Yukos’ billionaire founder last summer. and the sale of the company’s production unit, Yuganskneftegaz, to the state after a disputed auction in December 2004.

While the fraud investigation against company founder Mikhail Khodorkovsky and the tax probe into Yukos that began in 2003 were cast by the Kremlin as a crusade against a rotten corporate empire, some considered the case punishment for Mr. Khodorkovsky’s perceived political ambitions.

Many also saw the campaign, which rattled Russia’s investment climate, as a simultaneous drive by the state to regain control of the oil sector.

The question now is who gets what as Yukos assets are auctioned off.

Court appointed liquidator Eduard Rebgun, who was also bankruptcy supervisor, gave no timeline for the sales, but said that creditors were still able to submit claims.

Analysts expect that state-controlled gas monopoly OAO Gazprom and state-controlled oil company OAO Rosneft, which became the third-biggest oil producer overnight after acquiring Yuganskneftegaz, will acquire the remaining Yukos assets in the course of the liquidation.

Both companies are being primed as national champion energy companies capable of competing with the likes of Exxon Mobil Corp. and Saudi Arabia’s Aramco.

Gazprom has expressed an interest in the Yukos Tomskneft production unit, while Rosneft has said it will consider all potential purchases that appear on the market. Rosneft already is Yukos’ biggest creditor after the Federal Tax Service, and could see its position strengthened by an additional $8 billion in claims admitted by a court on Aug. 10.

Mr. Holiner said the fact that the tax service and Rosneft were the main creditors made yesterday’s ruling “little surprise.”

Tim Osborne, a director of GML, Yukos’ core shareholder through which Mr. Khodorkovsky once controlled the company, said the campaign against Yukos was based “on a political agenda” and vowed that shareholders would “revisit today’s events in The Hague, London, Washington, D.C., and elsewhere.”

“The Russian government has set out to destroy Yukos from the very beginning,” Mr. Osborne said.

During the 3-hour hearing, Yukos lawyers repeated their insistence that the company’s assets exceeded its liabilities and could function as a viable enterprise.

Mr. Rebgun, however, said that based on a 250-page review of the company’s finances, his conclusions are that “it is impossible of Yukos to be made solvent.”

After the hearing, Mr. Rebgun was lamenting the monthly salary of 1.8 million rubles ($67,000) given to him by the judge — much of which he said would go toward insuring the risks he will take as liquidator, and far less than the nearly 9 million rubles recommended by creditors.

“It works out that I’ll be working for nothing,” he told the Associated Press.

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