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Putin: Sale Of Yukos Unit Legal

Oil Firm Tied to Kremlin Reportedly Represented Buyer at State Auction

By Peter Finn
Washington Post Foreign Service
Wednesday, December 22, 2004; Page A15

MOSCOW, Dec. 21 -- President Vladimir Putin on Tuesday endorsed the sale of a majority stake in Siberian oil fields held by Yukos, the besieged Russian oil conglomerate, and said the purchase had been carried out legally by "individuals with a long history in the energy sector."

Russian newspapers reported Tuesday that BaikalFinansGroup, the company that won control of the Yuganskneftegaz oil fields at an auction on Sunday, was represented by employees of Surgutneftegaz, another major Russian oil firm that has large cash reserves and close ties to the Kremlin. Baikal, a previously unknown company, bid $9.3 billion for the oil fields.


The Yuganskneftegaz fields account for 60 percent of Yukos's output, about 1 million barrels per day. (Dmitry Beliakov -- Bloomberg News.)

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Steven M. Theede, the American chief executive of Yukos, told reporters in London that the price was "half what should have been paid," according to the Associated Press. Putin, in Germany for meetings with Chancellor Gerhard Schroeder, said the sale, which went forward despite a U.S. court injunction barring it, followed Russian law and was an internal Russian matter.

The new owners, "as far as I have been informed, intend to forge relations of some sort with other energy companies in Russia with an interest in this asset," Putin said at a news conference. The auction, Putin said, "conformed completely with current Russian law, and I expect that all other activities in this area in the future will also take place according to law."

Schroeder declined to criticize the sale, saying, "Any attempt to make this an issue for German-Russian relations will fail." At least 30 percent of Germany's oil and gas imports come from Russia, and it is a major buyer of Russian natural gas, having purchased 35 billion cubic meters last year.

Putin's comments suggest that Gazprom, the state-controlled natural gas conglomerate, which declined to bid after Yukos filed for Chapter 11 bankruptcy protection in Houston last week, may form a partnership with the new majority owners. Analysts said Gazprom could also buy the oil fields outright after further analysis of the implications of Yukos's court filing in Texas.

The bankruptcy judge accepted jurisdiction for the case in the United States, and ruled on an attempt by Yukos to block international banks from financing the auction. The contested fields pump up to 1 million barrels of oil a day, about 60 percent of Yukos output. The auction, held at the headquarters of the Russian Federal Property Fund, was scheduled by the government to help recoup about $28 billion it says Yukos owes in back taxes.

Putin mentioned Gazprom in connection with the sale in his remarks on Tuesday.

"There is an agreement between our largest energy company, Gazprom, and the Chinese state energy company over cooperation in energy issues," Putin said. "We do not rule out the possibility that a Chinese state energy company will be involved in the work of the Yuganskneftegaz asset that was sold at auction."

Yukos, however, reiterated its position Tuesday that it would continue to seek legal action against those attempting to finance or purchase the Yuganskneftegaz unit. Yukos denies that it owes back taxes, contending that the liability claim was retribution for the political activities of the company's founder and former chief executive, Mikhail Khodorkovsky. Khodorkovsky has been jailed for more than a year on separate fraud and tax-evasion charges.

"If the deal on the sale of the Yuganskneftegaz stock is completed, damage to Yukos will total over $20 billion," Yukos said in a statement. "The company will demand the repayment of the damage from all sides involved in the sale and financing of this purchase and other deals which influenced the price of the stock." Yukos has said the $9.3 billion paid by the buyer at auction for 76 percent of the company amounted to a cut-rate deal.

Auction of the oil fields has drawn criticism from the financial community as well as from politicians, including some in the United Russia party, which usually supports Putin.

The Russian newspapers Vedomosti and Gazeta reported Tuesday that Igor Minibayev, an administrator at Surgutneftegaz, and Valentina Korarova, deputy head of the company's finance division, participated in the auction on behalf of the Baikal group.

Gazeta reported that one director of Baikal is also a co-owner of a company affiliated with Surgutneftegaz in the Siberian city of Surgut, where the company is based.

The company did not comment Tuesday on the reports. On Sunday the company said in a statement that it had no involvement in the auction.

Surgutneftegaz, a secretive company with an estimated $8 billion in cash reserves, is the fourth-largest oil company in Russia and is based across the Ob River in Siberia from Yuganskneftegaz. With the Yuganskneftegaz oil fields, the company would become the largest oil producer in Russia, analysts said.


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