Little known about Russian group that bought Yukos unit at bargain price

MOSCOW (AP) _ The jailed founder of the Yukos oil company on Monday called the weekend auction of its main production unit to a little-known company ``a wonderful Christmas present'' for the Kremlin,

Friday, December 17th 2004, 6:58 am

By: News On 6

MOSCOW (AP) _ The jailed founder of the Yukos oil company on Monday called the weekend auction of its main production unit to a little-known company ``a wonderful Christmas present'' for the Kremlin, and speculation mounted that the buyer was a front for the Russian state natural gas conglomerate.

BaikalFinansGroup on Sunday became the fourth-largest oil producer in Russia after buying the Yuganskneftegaz unit of Yukos for $9.3 billion, half of the $18 billion that foreign auditors had said the West Siberian unit was worth.

``The authorities have given themselves a wonderful Christmas present _ they have destroyed the most effective oil company in Russia,'' Yukos founder Mikhail Khodorkovsky said through his lawyers, according to the Interfax news agency.

Khodorkovsky, Russia's wealthiest man, has been in jail since his arrest Oct. 25. He has been charged with fraud and tax evasion and is now on trial.

The sale of Yuganskneftegaz reduces the once-giant Yukos to a shadow of its former self, one of the heaviest blows to a company which has been the target of a persistent government campaign. The government says it only wants to collect $28 billion in back taxes. Yukos officials say the Kremlin _ President Vladimir Putin in particular _ is punishing the company to halt Khodorkovsky's political activities.

After the auction, the Kremlin declared it would simply seize the Yukos production unit for taxes if payment was not received from BaikalFinansGroup within two weeks, according to Alexander Buksman, head of the Moscow branch of the Justice Ministry.

``The auction was farcical as the process being used by the Russians' false tax claims against Yukos,'' Yukos CEO Steven Theede told reporters in London. American executives hired by Khodorkovsky have fled Russia.

He said BaikalFinansGroup was just 2 days old, and ``it must be clear who the company is, and how this happened,'' implying the auction was rigged by state authorities.

Theede said the sale prices was ``half what should have been paid.''

``It's a move backward. We have been the most transparent company in Russia. To be sold to an unknown company is a move that is contrary to the overall reform initiatives in Russia,'' Theede said.

Bruce Misamore, Yukos chief financial officer, said in a conference call from Houston to London that the company had turned to U.S. courts last week to try to stop the auction, because ``we can't get justice in the Russian system.''

Financial markets in Russia opened lower Monday, a day after the sale.

Gazprom had been expected to be the high bidder, though the natural gas conglomerate for its part denied any links with BaikalFinansGroup.

Kommersant business daily called the sale ``a scandal,'' and Salambek Khadzhiyev, chairman of Rosbusiness Bank's oversight board, told the newspaper he ``had a feeling'' that Gazprom and BaikalFinansGroup ``clearly had a connection between each other.''

Gazprom said Sunday that neither it nor Gazpromneft _ its oil component, which was to officially make the firm's bid _ had any relation to the winner, Interfax reported. Other top Russian oil producers _ Lukoil, Surgutnefetegaz and TNK-BP, have also denied ties to BaikalFinansGroup.

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 a global energy titan.

While analysts have little doubt that the state will ultimately take control of Yuganskneftegaz, its purchase by the previously unknown BaikalFinansGroup promises investors yet more uncertainty in an affair that has battered business confidence in Russia.

``There is no early prospect of the hoped-for outcome of getting the whole affair over and done with, allowing Russia to move on and start to repair the damage to the investment climate,'' the United Financial Group brokerage wrote in a note to investors. ``Instead, the market must hunker down for yet further attrition from the Yukos affair.''

Yukos, which still faces some $18 billion in back tax claims after the sale, was down nearly 10 percent in midday trading on Moscow's RTS exchange.

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

Little is known about the winning bidder except that it was registered in the city of Tver, in western Russia, and applied to join the bidding only after a Houston, Texas, court issued an injunction against the sale because of Yukos' U.S. bankruptcy filing. The ruling caused Western banks to freeze financing that was in place for the expected bid from Gazprom, the state-controlled natural gas behemoth that was seen as the Kremlin's favorite to buy the Yukos subsidiary.

Questions immediately centered on BaikalFinansGroup's relationship, if any, to Gazprom.

Paul Collision of the Brunswick brokerage said that Gazprom or not, the true buyer was undoubtedly Kremlin-connected and had used an unknown company in hopes of avoiding litigation.

The ITAR-Tass news agency claimed that BaikalFinansGroup's registration address in Tver was the same as one of Gazprom's offices. The agency later reported from Tver that the building at the address housed a food store, a cafe and a mobile phone shop.