Putin sheds some light on buyer of Yukos unit

Dec 21, 2004 01:00 AM

by C.J. Chivers

President Vladimir V. Putin offered the first official insight into purchasers of the largest subsidiary of the oil giant Yukos, and suggested that these secretive buyers, as had been suspected, might transfer the assets to other owners.
"The shareholders of that company are exclusively private individuals," Mr Putin said. "But they are individuals who have for many years engaged in the energy business." Mr Putin further hinted that the new owners would not have, or maintain, exclusive control over their rich new holding, as analysts had said.
"As far as I know, they intend to establish certain relationships with other Russian energy companies, which may be interested in this asset," he said.

Speculation has swirled around the identity of the buyers of Yuganskneftegaz, Yukos's top-producing subsidiary, since it was bought in a six-minute auction by the Baikal Finans Group, a company not heard of until just before the sale.
Analysts had almost uniformly said that Baikal, an entity with so little apparent infrastructure that were it not for the two bidders at the auction, it would seem not to exist, was probably a shell company that would be only a temporary owner. They also predicted that Yuganskneftegaz, which pumps about a million bpd of oil, would soon be resold in a Kremlin-managed transfer to one of Russia's other energy giants.

Elements of this theory were further advanced by Mr Putin's somewhat elliptical confirmation that the Kremlin was aware of the identity of the buyers and of their intentions. Two Russian newspapers, Gazeta and Vedomosti, reported that Baikal appeared to be connected to Surgutneftegaz, Russia's fourth-largest oil producer. The two representatives for Baikal who appeared at the auction were both high-level managers at Surgutneftegaz.
Ronald P. Smith, an analyst at Renaissance Capital who has covered Surgutneftegaz, said a bid of $ 9.35 bn "would go completely against their character." He said any role company officials might play would more likely be bidding and then briefly holding the company, to give the Kremlin or other companies time to arrange a final transfer.

In Washington, the White House expressed disappointment that Russia had proceeded with the auction.
"We had hoped for a solution that would allow for the legitimate enforcement of tax laws, but avoid harming investors, especially American investors," said Scott McClellan, the White House spokesman. "And we have communicated to the Russian government repeatedly that its handling of the Yukos matter could have a chilling effect on the foreign investment in Russia, and affect its role in the global economy."

Taken together, the reported role of Surgutneftegaz officials and Mr Putin's remarks provided a small degree of clarity to a mystery that has sent chills through business circles, and renewed worries about the rule of law and property rights in Russia.
Aside from the two representatives at the auction, neither the principals nor the managers of Baikal have shown themselves in public.
Claire Davidson, a Yukos spokeswoman, said Yukos had not heard from Baikal. "We have had no direct contact from the company that apparently won the auction," she said.

Yukos appeared to have gained traction against the sale, when the United States Bankruptcy Court in Houston issued an injunction barring Gazprom, Russia's natural gas giant, from participating in the auction, which it had been expected to do though its own shell subsidiary, Gazpromneft.
In a related development, Gazprom announced that it had approved the sale of Gazpromneft. Analysts read that as a concession that Gazprom's bidding tactic had failed, and that after the court order in Houston, the company realized that it would be vulnerable to legal action that could expose its extensive gas exports to Europe.

Analysts said Baikal was a back-up holding company whose ownership remained unclear, but the eventual owner of Yukos's subsidiary would still probably be Gazprom, a Kremlin favourite. This view was strengthened when Mr Putin said China may have a future role in Yuganskneftegaz; China, through a government-controlled petroleum concern, has been collaborating with Gazprom on energy projects.
Yukos continued to examine its options for challenging the auction, among them suing third parties to the auction for $ 20 bn in damages.
"We believe the auction should never have taken place," Ms Davidson said. "We believe the auction is illegal."

Russia's legal actions against Yukos include tax cases that have billed the company for billions of dollars and a criminal case against its founder, Mikhail B. Khodorkovsky. They are widely regarded as driven by a personal animus Mr Putin feels for Mr Khodorkovsky, who became politically active after becoming Russia's richest man.
Mr Putin played down the significance of the sale, and said that in his meetings with Gerhard Schroeder, the German chancellor, the subject had not come up.
"This is above all an internal Russian problem," he said.

Source: ENATRES discussion list
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