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International Herald Tribune: As Yukos is whittled to nothing, a state giant emerges from remains

The Associated Press
Published: May 9, 2007

MOSCOW: The bankrupt oil company OAO Yukos will vanish this week, in a flurry of auctions that end more than three years of politically charged legal action that left its former owner jailed and many of its assets snapped up by a state-controlled rival.

Yukos, once regarded as one of Russia’s best-run and most transparent companies, was driven into bankruptcy by back tax bills of some US$30 billion (€22 billion) while former owner Mikhail Khodorkovsky was sentenced to eight years in prison for fraud and tax evasion.

Although President Vladimir Putin and other Russian officials have cast the cases as a deserved purge of a rotten business empire, observers suggest other motivations.

Khodorkovsky, once believed to be Russia’s richest man, had funded opposition political parties and was seen as having personal political ambitions that the Kremlin wanted to quash. A series of asset auctions have allowed the state-controlled oil company OAO Rosneft to transform itself from a loose bundle of holdings into an energy titan.

If Rosneft dominates this week’s auctions as analysts expect, it would end up pumping more oil itself than either Nigeria or Iraq.

Yukos’ fate “is at the core of the Kremlin’s emergence from passive observer in the 1990s to the controlling power it is today in both the economy and in politics,” said Chris Weafer, chief strategist with Alfa Bank in Moscow.

Three lots will go under the hammer on Thursday and Friday. They include Yukos’ last remaining production unit — Samaraneftegaz — as well as the most visible symbols of its shattered empire: gas stations that dot the capital and its towering, downtown headquarters.

Rosneft has undergone a revival as striking as Yukos’ decline.

As Yukos, once the toast of foreign portfolio investors, was hammered into penny-stock status, Rosneft — with Putin’s deputy chief of staff Igor Sechin in the chairman’s seat — was steadily gaining power.

It became a major player overnight in December 2004 after acquiring Yukos’ 1-million-barrel-a-day Yuganskneftegaz production unit from an apparent shell company that had bought it in an auction.

In this year’s auctions, Rosneft snapped up a chunk of its own shares that had been owned by Yukos for 10 percent lower than their market value. Last week it bought Yukos’ 230,000-barrel-per-day Tomskneft unit and a handful of refineries. That let Rosneft leapfrog over OAO Lukoil to become Russia’s biggest oil producer and gave the state control of more than 40 percent of Russia’s oil production.

Should Rosneft win the auction of Samaraneftegaz on Thursday morning, it will acquire more refineries and an additional 200,000 barrels per day of production capacity. Bidding will start at US$6 billion (€4.4 billion).

The company also plans to compete against Royal Dutch Shell PLC and BP PLC’s Russian joint venture for a network of 537 gas stations in another auction Thursday, the Vedomosti business newspaper reported Tuesday.

Winning Samaraneftegaz would send Rosneft’s average daily production from 1.9 million barrels to 2.1 million barrels. According to OPEC average production figures for March, that is already level with Nigeria and Iraq.

Assuming that Rosneft gets production at both Samaraneftegaz and Tomskneft back to the same level as before the back-tax campaigns, Rosneft could soon be pumping 2.3 million barrels per day.

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