Little-known company buys Russian oil facility

Winning bidder likely tied to state-owned firm, economic analysts say

December 20, 2004|By Kim Murphy | Kim Murphy,LOS ANGELES TIMES

MOSCOW - A company so small it didn't appear to have an office successfully bid yesterday to buy the second-biggest oil production facility in Russia for $9.3 billion, deepening the intrigue around the fate of Yukos Oil.

The auction in effect guts Yukos, once the dominant Russian oil giant, which had relied on the 1 million barrels a day produced by its Yuganskneftegaz unit in Siberia for 60 percent of its output. The unit's sale at barely half its value to a little-known company, BaikalFinansGroup, leaves Yukos with little hope of maintaining solvency.

Lawyers for Yukos vowed to challenge the auction in courts around the world.

"They have brought upon themselves gigantic legal risks by buying this asset. And we will make them realize this full well, quite shortly," company spokesman Alexander Shadrin said. "Their ownership rights are in grave doubt."

But the issue of whose ownership rights were in question was, as is often the case in the shadowy world of Russian finance, still unclear yesterday.

Analysts speculated that BaikalFinansGroup might be a hastily formed front for Russia's state-controlled Gazprom natural gas company, which was prohibited last week by a U.S. court order from bidding on the unit, or a facade for a wealthy private oil company such as Surgutneftegaz, which is known to have close ties to the Kremlin.

Either could be an attempt on the part of the Kremlin to quietly take control of Yukos' key production asset without openly defying the U.S. court order and putting Gazprom's international assets at risk.

"Russia inherited from the Soviet Union a rich experience of fooling the West, which Stalin turned into a form of art," said Mikhail Delyagin, an economist with the Institute for Globalization Studies in Moscow. "The West is all but ready to be fooled again and take this auction for granted as a fair and honest competition."

Yukos has been locked in combat with the Russian government over $27 billion in tax claims, launched after the company's former chief executive, Mikhail Khodorkovsky, became an active political opponent of President Vladimir V. Putin. A freeze on its assets imposed by a Russian court left the company unable to pay the tax bill, and authorities moved immediately to sell the company's most valuable asset, Yuganskneftegaz.

Despairing of finding help in the Kremlin-controlled Russian court system, the company won a temporary restraining order last week from a federal bankruptcy judge in Houston. The order, promptly discounted by Russian officials, prohibited Gazprom and its financial backers from bidding in the auction.

In apparent preparation to defy the injunction, Gazprom's oil subsidiary, Gazpromneft, showed up as the other of only two bidders at the auction.

At the last minute, BaikalFinansGroup opened with a bid substantially higher than the $8.65 billion minimum, prompting the Gazprom representative to excuse himself to make a telephone call. When he returned, he submitted no bid and BaikalFinansGroup was declared the winner.

Yuri Petrov, chief of the Federal Property Fund, which conducted the auction, said he had no information on the owners of BaikalFinansGroup.

"I think with everyone present here in the hall, no one can answer this question. It was a surprise as big for us as for you," he told the more than 175 journalists assembled for the sale.

No sign of the company could be located at its official address in the town of Tver, about 100 miles northwest of Moscow, according to Itar-Tass, which said it found a mobile-phone office, snack bar and mini-mart at the location. According to a telephone database, an office of a joint venture with the U.S. oil services company Halliburton is located in the same building.

On the same street, but in a different building, are the offices of Tvernefteprodukt, the retail arm of Surgutneftegaz, Russia's fourth-largest oil producer. The oil company's owner, billionaire businessman Vladimir Bogdanov, has close ties to the Kremlin, and some analysts speculated that Surgutneftegaz might have bid on the property through BaikalFinansGroup with the Kremlin's blessing.

"Although the company is private in terms of ownership, it's absolutely state-controlled as far as its policy and management, and they have been looking at Yuganskneftegaz for years," said Nelli Sharushkina, head of the Moscow office of Energy Intelligence, an industry newsletter.

But many analysts said it is likely that Gazprom will emerge as the true behind-the-scenes operator at BaikalFinansGroup. The natural gas company may have elected to allow a front company to act as the bidder in order to avoid technically violating the Houston court order, some said.

"It could be that this company goes in, takes the auction, and then it actually turns out to be a Gazprom company, or Gazprom buys it from them. That's the most likely thing," said Erik Wiegerts of United Financial Group in Moscow.

The least likely possibility, said economist Delyagin, is that a group of unknown investors assembled $9 billion without the knowledge of the Kremlin and decided to bid on the unit.

The Los Angeles Times is a Tribune Publishing newspaper.

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