Moscow To Auction Yukos' Main Oil Producing Unit.

The Moscow government is to auction the main producing unit of Yukos, Russia's biggest oil company, on Dec. 19. The unit, YuganskNefteGaz (YNG), is a west Siberian oil producer with a current output in excess of 1m b/d. It is being offered at a minimum price of $8.6 billion, a little over half of its fair market value.

The forced sale of YNG, with the State Property Fund having published a notice in the official Gazette on Nov. 19 announcing the auction, brings the struggle between the owners of Yukos and the Moscow authorities towards its finale. The minimum asking price compares with a lowest fair value of $15.7 billion placed on YNG by Dresdner Kleinwort Wasserstein, the government's valuer. News of the sale, coupled with fresh criminal actions and indications of a further $6 bn tax charge against Yukos, provoked a sharp fall in the company's share price on Nov. 19 and depressed the entire Russian stock market.

The struggle has been interpreted as an attempt by President Putin to neutralise the political influence of Mikhail Khodorkovsky, Yukos' former chief executive and largest shareholder, and to wrest his control from the company. It came only a day after Fitch raised Russia's credit rating to investment grade and Standard & Poor's, another credit agency, said it might follow suit, citing the strengthening of the country's external balance sheet.

The terms of YNG's sale were denounced as "daylight robbery" by Andrei Illarionov, President Putin's outspoken economic adviser, quoted by the Bloomberg agency on a trip to New York. Yukos' American CEO Steven Theede called the sale illegal under Russian law and said it would destroy one of the country's most efficient oil producers.

Khodorkovsky, on trial for fraud and tax evasion, issued a statement saying he was transferring to Yukos' own management the majority stake in the company which he holds along with his partners through their Group Menatep. That action suggested Khodorkovsky was set to relinquish his control of Yukos, in a move experts believe could pave the way to salvaging some of the remaining assets of the company. The Financial Times on Nov. 20 quoted Paul Collison, energy analyst with Brunswick UBS, a Moscow brokerage that has advised Khodorkovksy, as saying: "One of the key issues has been getting Menatep out of Yukos. This could pave the way to a lenient sentence for Khodorkovsky, and keeping the remainder of Yukos intact. If it's part of a deal, it's fantastic. If not, it's disastrous".

Most international oil groups have ruled out competing in the YNG auction for fear of being sued by Yukos shareholders. Many analysts believe Gazprom and Rosneft, the gas and oil groups merging into a state-controlled GazpromNeft, are the most likely bidders.

Yukos on Nov. 19 said it was facing a further $6 bn tax charge for 2003, bringing a total in claimed tax avoidance since 2000 to $20 bn, on top of a $3 bn claim against YNG. Yukos' claim for back taxes for 2002 alone exceeds its annual sales in that year.

The planned sale of YNG comes one day ahead of an extraordinary meeting called by Yukos for Dec. 20 to decide whether to place the company into bankruptcy or liquidation.