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Russia Plans to Proceed With Yukos Oil Auction

By Alex Nicholson
Associated Press
Saturday, December 18, 2004; Page E01

MOSCOW, Dec. 17 -- Russia pledged Friday to ignore a U.S. court ban on the looming auction of oil giant Yukos' key production unit, while a consortium of Western banks reportedly put on hold billions of dollars in credit for the state-run Russian gas company that was expected to buy the unit.

A day after U.S. Bankruptcy Judge Letitia Z. Clark granted Yukos an injunction barring the Russian government from auctioning the Yuganskneftegaz unit, Russian officials said the ruling was irrelevant on Russian soil and promised the auction would go ahead on Sunday.


A Yukos Oil worker probably will have a new employer if the Russian government defies a U.S. court order and holds its auction on Sunday. (Dmitry Beliakov -- Bloomberg News)

_____Special Report_____
Putin and the Oligarchs

"The sale of Yuganskneftegaz is an internal matter for Russia," Prime Minister Mikhail Fradkov was quoted as saying by Russian news agencies.

Earlier, Foreign Minister Sergey Lavrov said the U.S. court decision would have no legal force in Russia, saying "someone wanted to drum up tension and put the investment climate in Russia in doubt."

Lawyers and analysts have said there are no agreements between Russia and America that could make the decision enforceable on Russian soil.

The Russian government planned to auction off Yuganskneftegaz to pay some of the $28 billion in back taxes it says Yukos owes. The government has put a starting price on the auction far below what Yukos says the unit is worth. The Western Siberian unit pumps 1 million barrels a day, or 60 percent of Yukos total output.

Russia's state-owned natural gas monopoly Gazprom is expected to win the auction, making it -- and by default, the Russian government -- one of the biggest oil businesses in Russia virtually overnight.

Yukos management and outside observers say the back taxes and the jailing of its former chief executive Mikhail Khodorkovsky on fraud and tax evasion charges are aimed at neutralizing Khodorkovsky's political activities and reasserting state control over Russia's economically crucial oil industry.

Meanwhile, a consortium of Western banks -- including Deutsche Bank, ABN Amro, BNP Paribas, and Dresdner Kleinwort Wasserstein -- froze between $10 billion and $13 billion it had lent Gazprom for its bid, Russian and other news reports said.

Citing what it called high-ranking Western financial sources, the ITAR-Tass agency said the banking group had decided to freeze the deal at least until the U.S. court reaches a final decision.

With a big presence in the United States, the banks could face legal action if they violated the court order.

Representatives of Deutsche Bank, BNP Paribas and Dresdner Kleinwort Wasserstein declined comment Friday. ABN Amro representatives could not be reached for comment.

Alexander Stepanenko, a spokesman for the Gazprom oil unit, said the company was committed to bidding on Sunday and the company had received no notification from the western banks that they would be canceling their funding.

"We've made an application, made the deposit and received permission from the anti-monopoly service," he said.

Even Yukos's lawyers agreed that the auction will go ahead.

"We remain realistic about the ruling's immediate effect," the company said in a written statement.

Analysts said Friday that the consortium had a difficult decision to make. "It is difficult for any bank to feel comfortable with a loan of this sort," said Richard Hainsworth, head of RusRating, a Moscow-based bank rating agency. "I find it very unlikely that any bank would make a decision to lend on the basis of credit risk, but political considerations will be more important."

Were Deutsche Bank -- Germany's biggest bank -- to pull out of the deal, it would have huge implications for German-Russian economic relations. Gazprom sends about 35 percent of its European gas exports to Germany and supplies more than a quarter of Europe's gas.

Analysts acknowledge that the deals and tactics that Khodorkovsky used to turn Yukos into Russia's biggest vertically integrated oil company often left minority shareholders in the cold. But they say the Russian government is not in the right for dismembering a company that was highly coveted by shareholders, Russian and foreign.


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