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Last Updated: Thursday, 25 November, 2004, 12:37 GMT
Q&A: The battle for Yukos
The long-running battle between the Russian government and leading oil producer Yukos is coming to a head.

The government has accused Yukos of tax evasion, seized the company's flagship oil production unit to pay the $24bn bill, and is prosecuting former chief executive Mikhail Khodorkovksy for fraud.

Yukos, which pumps almost 20% of Russia's oil and accounts for 5% of the country's total GDP, say it is facing potential bankruptcy.


Where are things at now?

In a bid to settle Yukos' enormous tax bill, the government says it is selling a 76.7% stake in Yuganskneftegaz, which pumps more than half of Yukos's oil output.

Yukos petrol station in Moscow
The future for Yukos looks increasingly bleak
The government has yet to formally outline how the sale will proceed, but it says the production unit will go on sale on 17 December for a minimum of 246.8bn roubles ($8.65bn).

That price - well below the $20bn Yukos says the unit is worth - has prompted many observers to predict the ultimate dismantling of the company, which accounts for one out of every five barrels of Russian oil.

Yukos' options are very limited. The firm is unable to pay its tax bills or payments on a $1bn loan.

The company's main shareholder, Menatep, has filed a legal complaint to prevent the sale of Yugansk, but it is unlikely to succeed.

Share prices have tumbled, and on 20 December Yukos will ask its shareholders to vote on whether or not the embattled firm should file for bankruptcy.

Who will buy it?

Yugansk is an attractive prospect, and a number of companies have expressed an interest in it.

A recent Russian newspaper report suggested the China National Petroleum Corporation was considering a bid, citing a source in the Russian presidential administration. The source said the government was also conducting negotiations with US oil major ChevronTexaco.

The Anglo-Dutch oil giant Royal Dutch/Shell has not ruled out participation in the bidding.

However, Russian energy firms Gazprom and Surgut are tipped as the most likely buyers.

Both are said to be close to the Kremlin; Gazprom is 38% state-owned, and the Kremlin will own a majority shareholding if a merger with oil firm Rosneft goes through.

Yukos has frequently predicted that Yugansk will end up in the hands of a state-owned firm - effectively renationalising it - or to a supporter of President Vladimir Putin.

What are the causes of the dispute?

The Russian government, headed by President Vladimir Putin, has accused Yukos of misusing tax havens inside Russia in the 1990s in order to reduce its tax burden.

Yukos claims that the practice was legal at the time.

Supporters of former company chief Mikhail Khodorkovsky say the pursuit of Yukos is part of a government strategy to crack down on wealthy Russians who might pose a political threat.

Mikhail  Khodorkovsky in prison
Yukos founder Mikhail Khodorkovsky remains behind bars

They also accuse President Putin of wanting to renationalise the company.

Until October 2003, Mikhail Khodorkovsky was one of Russia's most influential men and - by some measures - its richest, worth an estimated $15bn.

No longer in charge of the company, Mr Khodorkovsky now sits in jail, awaiting the restart of his trial for fraud, tax evasion and embezzlement.

While most of Russia's other oligarchs concentrated on simply getting richer and richer, and on getting their money out of the country, Mr Khodorkovsky went into politics and used his fortune to fund opposition groups.

His supporters claim that Mr Khodorkovsky's growing influence in public life - particularly his acquisition of the rights to publish the influential newspaper Moskovskiye Novosti - was seen as a threat by the Kremlin.

For his part, Vladimir Putin has argued that the Yukos affair is a purely financial one and has insisted that his government does not intend to bankrupt the company.

What has been the impact of the row?

It is not entirely clear what the government feels it has gained by targeting Yukos.

Its actions have called into question Russia's attitude to property rights, and could make Russia's entry into the World Trade Organisation more problematic.

The affair has combined with planned electoral reforms described by critics as authoritarian, to tarnish some of the international respectability Mr Putin has recently gained.

His own economic adviser has expressed misgivings about the way he has handled the affair. Andrei Illarionov said some investors were now scared of getting involved in the oil and gas industries.

A World Bank report on Russia in June also found that the Yukos affair had left "visible imprints" on financial markets and capital flows.

And while Russian oligarchs may not be not popular in Russia, it is not clear that the Yukos affair has won him any votes.


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