Yukos Could Go Belly Up By Mid-august

Yukos has warned that it could be forced to halt operations and exports and face bankruptcy within a month. The embattled oil company said in a statement that the court order freezing its bank accounts and assets means it will not have the $1.7 billion in cash it needs for operating expenses each month. In addition, Yukos CEO Steven Theede said that the freeze on the company’s accounts and assets means it would also be unable to pay the government’s $3.4 billion tax bill. Theede made his remarks amid speculation that the company might file for bankruptcy. His comments followed an announcement by the Justice Ministry that court bailiffs are preparing to sell Yukos’ main production unit, Yuganskneftegaz, which accounts for 62% of the company’s 1.7 million-barrel daily output (Reuters, July 22; Moscow Times, July 23). On top of everything else, the recent moves against Yukos have sent value of the company’s shares down and average of ten percent a day (ABN.ru, July 22).

The authorities, meanwhile, show no sign of easing up. On July investigators from the Prosecutor General’s Office searched the premises of one of the banks in which Yukos keeps its money, Trust Bank, seizing documents related to the oil company’s frozen accounts (Interfax, July 22). The Interior Ministry, for its part, is investigating several of Yukos’ subsidiaries. “How did Yukos avoid taxes? Of course, through subsidiaries, therefore we have complaints against it,” said Deputy Interior Minister Sergei Verevkin-Rakhalsky, who heads the Federal Service for Economic and Tax Crimes (Itar-Tass, July 22).

A number of observers in Russia and the West have spoken out against the latest moves against Yukos and its possible dissolution as a company. Economist Mikhail Delyagin, who heads the Institute for Problems of Globalization, said that the treatment of Yukos gives the strong impression that the company is being punished not for what is accused of doing or even what it is guilty of doing, but for it has done right. The reaction of the Russian business community, he added, has been graphic: according to Delyagin, while $2.2 billion flowed out of Russia in the year before the first moves against Yukos and its main shareholders were taken, $11.6 billion — that is, 5.3 times more — left in the subsequent year, even though overall economic conditions have been better. At the same time, Delyagin claimed that “black” or criminal capital has begun flowing back into Russia (Novaya gazeta, July 22).

Arkady Volsky, head of the Russian Union of Industrialists and Entrepreneurs, called for putting an end to what he called “contract bankruptcies,” explaining, “There are currently 31,000 bankruptcy cases in the arbitration courts and half of them are contracts.” He added: “I, for one, am sure the bankruptcy of Yukos will have been commissioned.” Asked who would stand to gain from Yukos’ bankruptcy, Volsky answered: “I’m very scared about naming names right now. I’m quite simply scared, to be frank. I have six grandchildren and I want them to stay alive, too. I’m scared of naming these people but I can see who’s straining at the leash” (NTV, July 21).

Meanwhile, the Yukos crisis has caused Russia to be downgraded three places on the Deutsche Bank Eurasia Group Stability Index. The index, which measures stability in 24 emerging markets, shows Russian to have fallen from 60th to 57th place over the last year. Russia is now tied with the Philippines, while Turkey and China are tied for 59th place and Argentina is in 54th (Financial Times, July 21). The international ratings agency Standard & Poor’s stated that Yukos’ potential bankruptcy reduces the possibility that Russia will receive an investment-grade rating. “With what we have seen it curtails the upside for the rating,” said Konrad Reuss, managing director of sovereign ratings at S&P in London. Reuss added that the Yukos situation highlighted the absence of “stable and transparent institutions” in Russia (Reuters, KM.ru, July 22). Likewise, the Fitch ratings agency warned that the actions against Yukos could lead to lower investment and economic growth in Russia, interfere with the diversification of its economy, and increase capital flight (Rosbalt, July 22).