Yukos core unit bought for 'fraction of worth'

A previously unknown Russian company called BaikalFinansGroup bought the core production unit of oil giant Yukos at auction for €7bn today, gaining control of one of Russia’s most prized oil assets for a fraction of what Yukos executives say it is worth.

The Yuganskneftegaz unit, which produces 60 % of Yukos’ output, was auctioned ostensibly to pay off some of the €21bn in back taxes the government says are owed by Yukos, Russia’s largest oil producer.

The company has been the target of a lengthy campaign by prosecutors and tax authorities, which Yukos officials say is Kremlin punishment for the politics of its now-jailed founder.

Virtually nothing is known about the auction winner except that it was registered in the city of Tver, in western Russia, and had made its application only after a Houston court issued an injunction that restrained Western banks from financing the bid by the second of two bidders, the state-controlled Gazpromneft company.

Gazpromneft, the oil arm of the Gazprom natural gas monopoly, had widely been expected to win the auction of Yuganskneftegaz, which pumps 1 million barrels per day.

However, Gazpromneft representatives did not move when BaikalFinansGroup offered to pay €7bn for the stock, just a fraction over the €6.6bn starting price set by the Russian government, which was less than half of what Yukos and foreign auditors have said the unit is worth.

After BaikalFinansGroup made its bid, Gazpromneft’s people asked the auction officials for permission to make a telephone call and did not act after that.

Observers believe BaikalFinansGroup could be just an alternative vehicle for Gazprom, with sources of funding that are different from those initially prepared. Gazprom said that neither it nor Gazpromneft had any relation to the winner, the Interfax news agency reported.

But the ITAR-Tass news agency claimed that BaikalFinansGroup’s registration address corresponded to that of one of Gazprom’s structures in Tver.

While lawyers and analysts have said there are no agreements between Russia and the United States that could make the Houston court’s decision enforceable on Russian soil, news reports said a consortium of Western banks – including Deutsche Bank, ABN Amro, BNP Paribas, and Dresdner Kleinwort Wasserstein – had frozen between €7.3bn and €9.8bn it had planned to lend Gazprom for its Yuganskneftegaz bid.

Top Russian officials – including the prime minister and foreign minister - said the Houston court ruling was irrelevant on Russian soil.

Yukos spokesman Alexander Shadrin said after the auction that the sale was illegal under Russian and international law and that the winner “has bought itself a headache”.

“Whoever stands behind the winner and gave it financial help have done irreparable damage to their reputation and subjected their business to significant legal risks,” Shadrin said.

Yukos management and outside observers say the tax claims and the jailing of former CEO Mikhail Khodorkovsky on fraud and tax evasion charges are aimed at punishing the tycoon for his criticism of Kremlin policy and his perceived political ambitions, as well as reasserting state control over the oil sector.

Lawyers for Menatep Group, the holding company created by Khodorkovsky, which owns 60% of Yukos, also promised on to sue the auction participants as well as Russia, saying it had forfeited its sovereign immunity by engaging in commercial activity.

Menatep has disputed the tax claims and argued that the sale is illegal since Yukos’ non-core assets should first be sold to cover debts.

Igor Yurgens, a deputy head of the Russian Union of Industrialists and Entrepreneurs, a leading advocacy group for Russia’s big business, told Echo of Moscow radio that the fact that the top oil producer was bought by an obscure bidder was “unbecoming” for Russia.

Stephen Dashevsky, a leading analyst for Russia’s Aton brokerage, said the winner was likely affiliated to Gazprom.