Justice Ministry Says It Will Sell Yukos’ Main Production Unit

Yukos appears poised on the brink of extinction following the Justice Ministry’s July 20 announcement that it will put the oil company’s main production unit, Yuganskneftegaz, up for sale to cover the $3.4 billion that the Tax Ministry is demanding from the oil company for back taxes, interest, and penalties for 2000. Court bailiffs have seized shares for Yuganskneftegaz and Yukos’ other two production units, Samaraneftegaz and Tomskneft VNK. The ministry’s announcement sent Yukos shares on the RTS Stock Exchange plummeting 14.1%, and experts are predicting, as Vedmosti put it on July 21, the company’s “impending end.” According the announcement, a working group made up of court bailiffs, who are Justice Ministry employees, along with representatives of the Federal Agency for the Management of Federal Property and the Federal Service for Financial Markets, has already selected appraisers to assess the value of shares in Yuganskneftegaz, which will be auctioned.

In the wake of the Justice Ministry’s announcement, there have been various estimates of the value of Yuganskneftegaz, which produces more than 60% of Yukos’ oil. Yukos itself assessed the value of the production facility at $30.4 billion, based on its reserves while the Moscow Times reported that other valuations “would suggest that the production unit is worth at least $15 billion.” Even the lower estimate of Yuganskneftegaz’s value is more than four times Yukos’ outstanding tax bill and one and a half times higher than the oil company’s expected total tax bill of $10 billion. This suggests, as some analysts have noted, that the authorities’ motives in seizing the production facility in order to sell it off are not strictly fiscal, as does the fact that Russian law requires the authorities in such situations to sell off a company’s non-core assets first. Indeed, an unidentified Yukos official was quoted as saying that Yuganskneftegaz would be sold within a week to a pre-selected buyer for $1.75 billion. However, a spokesman for the Federal Property Fund, which would be in charge of the sale, said it was unlikely the production facility could be sold “within less than a month” (Vedomosti, Kommersant, Moscow Times, Financial Times, July 21).

As for Yuganskneftegaz’s likely new owner, a number of analysts named three main contenders — Rosneft and Gazprom, both of which are state-controlled companies, and Surgutneftegaz, an oil major said to enjoy warm relations with the Kremlin and to have a lot of cash on hand. Vedomosti reported earlier this year that Surgutneftegaz’s CEO, Vladimir Bogdanov, had paid a visit to the giant Priobskoye field, for which Yuganskneftegaz has exclusive drilling rights (Vedomosti, April 29). Lukoil, TNK-BP, and Sibneft have also been mentioned as possible purchasers of Yuganskneftegaz. Vedomosti, however, reported that Rosneft, Gazprom, and Lukoil said they would not be purchasing Yuganskneftegaz, while Surgutneftegaz, TNK-BP, and Sibneft chose not to comment (Vedomosti, July 21).

Vedomosti also suggested that the Justice Ministry’s announcement that Yuganskneftegaz will be put up for sale might not be definitive. The newspaper cited a “source close to Yukos” as saying that the court bailiffs, who have been taking the preliminary steps in the process of seizing Yukos’ assets, “simply don’t know what to do next and announced the start of the sale of Yukos in order to elicit ‘signals from the Kremlin.’ ” The newspaper quoted the same source as saying that the Justice Ministry announcement may have been aimed at making former Yukos CEO Mikhail Khodorkovsky, who is currently jailed and on trial for large-scale fraud and tax evasion, more “amenable” — an apparent reference to a possible deal of some kind. Khodorkovsky, meanwhile, said in a statement released on July 20 that he was ready to “fulfill court decisions [and] seek a compromise with the government that would allow the company Yukos to survive” (Vedomosti, July 21; Associated Press, July 20).

A number of observers, however, doubt that a compromise is likely. One newspaper said that despite President Vladimir Putin’s statement last month that the government was not seeking to destroy Yukos, “exactly this will happen in the near future” (Vremya novostei, July 21).

Meanwhile, in a development that could mark a further tightening of the state’s grip over another key sector of Russian society — the media –Interros Holding Company chief Vladimir Potanin is reportedly negotiating with Gazprom-Media, the media arm of the state-controlled natural gas giant, to sell it a 50.09% stake in the newspaper Izvestiya (Gzt.ru, July 20). Gazprom-Media took over most of Vladimir Gusinsky’s Media-Most holding, including NTV television, in 2001.