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THE NEW YORK TIMES: Yukos Sale a Mix of Pomp, Bureaucracy ( Posted 27 Dec 04




MOSCOW (AP) -- The final act in the 18-month legal drama against the Yukos oil company and its founder began with an incongruous mix of Sotheby's pomp and Soviet bureaucracy.


On the auction block was Yuganskneftegaz, a western Siberian complex that pumps more than 11 percent of Russia's crude output -- being sold against the $28 billion in back taxes the Russian government said Yukos owed.


The bidding, when it finally began, was conducted by an auctioneer in tails with a crimson bow tie. Within minutes, the crown jewel in the Yukos empire was sold to an unknown bidder. And ultimately, to the Kremlin.


The most disputed corporate auction in Russia's history has left what was once the nation's most transparent company in ruins, and the government in control of one of its largest oil producers.


``It was all an elaborate ruse,'' said Chris Weafer, a strategist at Moscow's Alfa Bank.


Yukos founder Mikhail Khodorkovsky has been jailed for more than a year on fraud and tax charges. Depending on who you ask, he is either a political prisoner targeted on trumped-up allegations for funding opposition parties, or a crooked tycoon who bought Yukos for a song in the rigged auctions of the 1990s before funneling its revenues through offshore schemes and pocketing billions.


The series of back tax claims have sent Yukos' market value plummeting from $40 billion to $1 billion. Police and prosecutors regularly raid the company's headquarters. A core shareholder is wanted on murder charges. Western executives have fled the country and are marshaling armies of lawyers from offices in Houston and London.


Yukos contended that noncore assets had to be sold first to pay down its tax debt, but said Russian authorities rejected numerous repayment plans. Authorities scheduled the sale for a day before a critical shareholders meeting, and state-controlled gas giant Gazprom quickly emerged as the favorite to win Yuganskneftegaz.


Three days before the auction -- and a half a world away in Texas -- U.S. bankruptcy court Judge Letitia Clark satisfied Yukos' lawyers request by banning the auction as part of the company's last-ditch attempt to stop the sale by filing for bankruptcy in the United States.


Observers accurately predicted that her injunction would alarm western banks -- including Deutsche Bank -- that were funding Gazprom's bid. They did not, however, guess that it would force the Kremlin to duck behind a specially created company.


``Basically this became an issue of national sovereignty to the Russians, they couldn't back down without looking like they were kowtowing to the American courts,'' said Eric Kraus, chief strategist at Moscow's Sovlink investment bank.


``They had to carry out the auction, so they created a shell company,'' Kraus said. ``It doesn't matter if its office was in a bakery or a nunnery, it was a holding structure.''


The auction was broadcast from the 4th floor of the building to the 12th, where the world's press watched events unfold on two giant video screens.


Officials laboriously examined the applications by Gazprom, a Kremlin tool in many political battles, and BaikalFinansGroup -- an unknown company that registered to bid just two days earlier.


When the auction began, BaikalFinansGroup, holders of paddle 1, bid once. A Gazprom representative asked permission to make a phone call. When he returned, he declined to bid.


Sold to the unknown company on the left. Price: $9.4 billion.


Who was BaikalFinansGroup? Reporters who checked the address learned that it was registered to the address of a bar in a provincial Russian town.


A group of Moscow students launched a spoof Web site, with a note in criminal argot apparently written by the mystery buyers. Officials, who maintained that they knew nothing about Baikal's possible backers, were asked if they could be sure Osama bin Laden was not fronting the money.


Russian newspapers reported that the man and woman who represented BaikalFinansGroup at the auction were managers from the Kremlin-loyal Surgutneftegaz oil company. Both were believed to be vacationing abroad.


By midweek, President Vladimir Putin hinted that the buyers were ``individuals with years of experience in the oil sector.''


Speculation shifted to Igor Sechin: a longtime Putin confidante and his deputy chief of staff, recently appointed chairman of Rosneft, a state-owned oil company that is being folded into Gazprom.


Finally, in the small hours of Thursday morning, Rosneft said it had bought BaikalFinansGroup.


``This is a fairly elegant solution to the problem, to the extent that this provides sovereign immunity'' to the decisions of foreign courts, Kraus said.


Putin defended the auction as completely legal, and contrasted it with the way well-connected businessmen obtained state-owned properties at bargain prices after the breakup of the Soviet Union. The purchase of Yukos' subsidiary by a 100-percent state-owned company, he said, ``was done in absolute conformity with market means.''


The Russian government is now just a document or two away from creating the world's biggest energy company. Once Gazprom absorbs Rosneft and Yuganskneftegaz, the Kremlin will be at the helm of an oil and gas titan with combined reserves six times that of Exxon Mobil Corp. and oil output of nearly 1.5 million barrels per day.


``Putin has achieved his political ambitions, the state has recovered its most important asset -- oil,'' Weafer said. ``And he has also brought the oligarch era to an end.''

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