Yukos slides towards collapse

MOSCOW - Russia's top oil exporter Yukos slid closer to collapse after it lost its main production unit to a mystery buyer in a forced auction and its crude shipments started to slow.

Yukos Chief Executive Stephen Theede acknowledged on Monday that the US$9.4 billion ($13 billion) government sale of its Yuganskneftegaz operation was an "irreversible act".

But he told reporters in London that Yukos would not turn over shares in Yugansk until the buyer, Baikal Finance Group, revealed its identity and backing.

A carve-out of the unit would likely take weeks, if not months, and in the meantime it was "business as usual" at Yugansk, he said, adding that Yukos' board will likely schedule an extraordinary general meeting soon to decide its next move.

Sunday's auction of Yugansk is the culmination of a Kremlin campaign to crush Yukos' politically ambitious principal owner, Mikhail Khodorkovsky, and seize control of strategic sectors of the economy sold off in the chaotic privatisations of the 1990s.

The Kremlin's ruthless determination to impose its will stunned investors, some of whom said Russia had become too hazardous a place for Westerners to do business.

"Russia is sliding towards being uninvestable. The whole thing is very sad," said Martin Taylor, hedge fund manager at London-based Thames River capital running US$5.5 billion assets.

"In the 1990s, Russian stocks traded at low valuations because everyone was worried about being robbed by the oligarchs. Now everyone is worried about being robbed by the government," Taylor told Reuters.

Oil traders said Yukos defaulted on two December Urals cargoes scheduled to load from the Baltic port of Primorsk after failing to pay export duties and fees.

Theede, speaking from self-imposed exile, said any delays to cargoes were likely due to cash shortages as a result of the authorities freezing its bank accounts. He added that if the tax authorities continued to squeeze the company, its ability to supply oil would be weakened further.

"You cannot run a company the size of Yukos on no money so we are already starting to see an impact, we are already starting to see a decline," he said.

Yukos stock lost more than a quarter of its value to 55 cents on RTS exchange in reaction to Sunday's auction, a mystery firm registered in the provincial Russian town of Tver.

At Yugansk's Siberian home base in the remote oil town of Nefteyugansk, the lights were still on at the company offices but an employee there contacted by telephone said salaries had not been paid for one month.

"Year-end holidays are close, and people don't have money. Of course people are worried," she said, asking not to be named.

Yukos is an empire with over 130,000 workers in 60 Russian cities whose livelihoods are now at risk.

Sunday's sale was ordered to raise funds to help pay Yukos's US$27.5 billion back-tax bill, the result of a relentless assault by authorities which analysts say is aimed at breaking it up.

Of the total tax bill, Yugansk itself owed US$5 billion.

The sale leaves Yukos stripped of its main asset, which pumps about one million barrels of oil a day, more than Opec member Qatar. The company has already considered filing for liquidation to protect its remaining assets from enforced sale.

However, Theede said the firm did not expect to file for bankruptcy in Russia after filing for protection in a US court.

"That some 10 per cent of Russia's (oil) production should be in unknown hands is clearly untenable," said Adam Landes at Renaissance Capital.

Khodorkovsky is now on trial for fraud and tax evasion and faces 10 years in jail if convicted.

Menatep, a group through which Khodorkovsky and associates control Yukos, has promised years of litigation.

Analysts speculated Baikal's auction win on Sunday may be a way of circumventing a US bankruptcy court ruling.

Last week's ruling imposed a temporary order on Russian gas monopoly Gazprom and other pre-registered bidders and their bankers not to take part in the sale, pending the outcome of Yukos's US Chapter 11 bankruptcy protection application.

Gazprom, which had been widely seen as favourite to buy Yugansk, ended up not bidding at the auction.

Its London-listed American Depository Shares ended 2.24 per cent lower at US$32.75 on Monday in what one Western trader attributed to "general disgust with Russia".

In Sunday's sale, watched by reporters on closed-circuit TV, representatives of both Gazprom's oil unit and Baikal appeared to lodge bids at the starting minimum price of US$8.87 billion.

But sale organiser the Federal Property Fund said later the minimum price was confirmed only by Baikal, which later offered an unmatched higher bid of US$9.4 billion.

A win would have put Gazprom, the world's top gas producer, in violation of the US court order and expose it to contempt of court proceedings that could involve foreign asset seizures.

Gazprom has denied having any links to Baikal Finance Group, named after the deepest fresh water lake in the world in eastern Siberia and registered in Tver, a city some 200 km (125 miles) north of Moscow.

A photographer had checked the address given by Baikal in Tver and had found a building housing a mobile phone shop and a cafe.

- REUTERS