Mystery shrouds auction of Yukos
unit By Sergei Blagov
MOSCOW
- A bitter battle over collapsing Russian oil major
Yukos reached its nadir as its most profitable
production unit, Yuganskneftegaz, was sold in a bizarre
forced auction on Sunday. In a weird outcome at an even
weirder auction, Yuganskneftegaz, which pumps more oil
than Organization of the Petroleum Exporting Countries
member Indonesia, was snagged by an unheard of entity,
formed just a week ago.
Yuganskneftegaz, which
produces 60% of Yukos' oil output, was auctioned
ostensibly to pay off some of the US$28 billion in back
taxes the government says are owed by Yukos. Chinese and
Indian oilers have long been rumored to be considering
bidding on the crown jewel in Yukos' crumbling empire,
but it's still unclear just who was backing the obscure
acquirer.
Baikal Finance Group, a previously
unknown Russian firm, acquired a 76.79% stake in
Yuganskneftegaz, the Russian Federal Property Fund
announced. Baikal offered 260.753 billion rubles (US$9.3
billion). Gazpromneft, a fully owned subsidiary of
Russian natural gas monopoly Gazprom, did not place a
bid. Baikal Finance has 14 business days to pay in full
for the stake. Virtually nothing is known about the
company except that it is registered in Tver, a small
town some 100 kilometers north of Moscow. Officially,
Baikal is registered in a small old building in Tver,
which now houses wine, food, garments and mobile phone
shops. None of Tver's traders have ever heard of Baikal.
In the wake of its winning bid, Baikal refrained
from any comment, promising to do so some time later
this year. It is widely understood that Baikal was a
sort of a special purpose vehicle, a shell firm.
Therefore, Yuganskneftegaz is expected to end up with
Gazprom or the Russian government eventually. However,
Gazprom and all other major Russian oil companies denied
they had any affiliation with Baikal. Incidentally,
Baikal Finance Group is named after a huge freshwater
lake in the Irkutsk region of eastern Siberia, thousands
of miles from Moscow but close to the Chinese border,
raising rumors Baikal could have links to Beijing.
Gazprom head Alexei Miller held talks with his
counterpart at Beijing's China National Petroleum
Corporation (CNPC) in Moscow on Friday. CNPC had
previously expressed its interest in Yuganskneftegaz and
it was rumored to have offered up to $20 billion for
Yuganskneftegaz, while Gazprom was reportedly mulling a
maximum bid of $12 billion. Though CNPC had been
expected to forego the auction in exchange for a Gazprom
long-term commitment to sell gas to China, in recent
days CNPC has been understood to be considering a joint
bid with Gazprom.
In recent days, the
Yuganskneftegaz acquisition has become a dicey game as
well. The sale of Yuganskneftegaz will bankrupt Yukos
because the remaining company will not be enough to pay
back Yukos's $27.5 billion tax debt. Yukos "considers
that the victor of [Sunday's] auction has bought itself
a serious $9 billion headache," said company spokesman
Alexander Shadrin. "Those who stand behind the winner
... have subjected their business to considerable legal
risks. We declare that the sale of Yugansk is illegal,"
he told reporters in Moscow. However, Shadrin conceded
that the legal battle could take years to end.
Shortly before the auction, lawyers of Yukos's
major shareholder, Group Menatep, held a news briefing
in Moscow and pledged to file suits against the buyer of
Yuganskneftegaz. Sanford Saunders and John Pappalardo,
senior partners at the international law firm Greenberg
Traurig, LLP, told journalists in Moscow that Group
Menatep could indeed initiate legal action aimed at
seizing Gazprom exports. They pledged to trace the
Gazprom "oil and gas supplies in other countries and
arrest them".
Marina Logan, a lawyer with
Greenberg Traurig, told reporters that the auction was
riddled with irregularities. Group Menatep had
previously indicated it could seek $50 billion from the
auction's winner. Menatep said after the auction,
Yugansk's new owners were "on notice that this is an
illegal expropriation". In an unexpected last-minute
move last week, Yukos filed for Chapter 11 protection in
the Houston bankruptcy court. A US bankruptcy judge
accepted jurisdiction for the case and the very next
day, on December 16, issued a temporary injunction to
block the sale of Yuganskneftegaz. Under the US court's
decision, the auction should have been put off for 10
days.
Yukos claims that the Houston bankruptcy
court has jurisdiction over company matters because
chief financial officer Bruce Misamore lives in the
city. Yukos also has $2 million in a Texas bank and has
deposited $5 million more for a retainer with its
Houston-based lawyers. Yukos says it has many US
investors. However, it was hardly a coincidence that
Yukos filed for bankruptcy protection in President
George W Bush's home state. Yukos opponents tried the
same trick, in vain. Gazprom reportedly filed and lost
an appeal in the US, as the District Court of Houston
reportedly rejected Gazprom's move to secure permission
to bid and not to overturn a 10-day restraining order.
Subsequently, the Yukos case has become a kind
of bilateral issue between Russia and the US. "Yukos's
management has the right to pursue any legal remedies it
determines are in the best interest of the company and
its shareholders," state department spokesman Richard
Boucher said in a statement. "We've expressed our
concerns about the Yukos case and about its implications
for the Russian economy," he said.
Moscow
responded with yet another spate of Cold War era-style
rhetoric. Russian Prime Minister Mikhail Fradkov said
that the Yuganskneftegaz auction was Russia's "internal
affair". Russian Foreign Minister Sergei Lavrov said the
Yukos case would be handled according to Russian law,
implying that Russia was unperturbed by the US
bankruptcy court injunction. Commenting on the ruling,
Lavrov said it is "highly politicized".
Apart
from the growing acrimony between Moscow and Washington,
the Yuganskneftegaz case has already taken on
international overtones. Last month, Moscow indicated it
could have allowed Indian oilers to bid for Yukos. The
state-run ONGC could bid for acquiring the assets of
Yukos, petroleum secretary S C Tripathi announced,
adding that ONGC could look for an alliance with
Gazprom. However, as Gazprom seemingly refrained from
bidding directly, ONGC is also understood to be out of
this risky game.
However, it turned out that the
Russian authorities hinted at a possible full-scale
nationalization of Yuganskneftegaz. If Baikal Finance is
unable to pay for Yuganskneftegaz, it would lose its
auction deposit and the Yuganskneftegaz stake could
become state-owned, Alexander Buksman, head of Moscow's
justice department, told reporters. Such a development
would, of course, put an end to China's and India's
hopes of securing a share of Russia's oil bonanza. Or
maybe Chinese and Indian oilers would be saved the
trouble of facing the $50 billion in legal claims by
Yukos's former owners.
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