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Analysis: Keeping Yukos Guessing

  • Robert Coalson

http://gdb.rferl.org/B464A9F0-D041-4B3D-9629-2DF5C26FB6A4_w203.jpg --> http://gdb.rferl.org/B464A9F0-D041-4B3D-9629-2DF5C26FB6A4_mw800_mh600.jpg Former Yukos CEO Mikhail Khordorkovskii (file photo) Twists in the case of embattled oil giant Yukos have been coming fast and furious over the last few weeks, although developments have appeared so thoroughly contradictory that the only thing that seems certain is that the Kremlin has not yet made up its mind as to just how things will turn out.

On 4 August, to take one vivid example, Yukos announced both that the company would sell its 56 percent stake in Rospan to TNK-BP to cover part of its tax debt and that the Justice Ministry had given permission for the company to finance its operating costs from its frozen bank accounts. These announcements sent Yukos shares rallying and prompted Russian Union of Industrialists and Entrepreneurs President Arkadii Volskii to proclaim that "we are seeing some easing of the situation around Yukos."

The next day, the Justice Ministry announced both that it "has many questions" about the proposed Rospan sale and that "bailiffs have not made a decision on issuing permission to Yukos to make monthly payments or to ensure current activities," Prime-TASS reported. Yukos shares immediately fell by 14 percent on the news.
Russian producers have responded by boosting production. The Industry and Energy Industry announced that the country had reached a new post-Soviet production record of 9.3 million barrels a day.


Such scenarios have become so common that trading in Yukos stock is suspended almost every day as the volatile shares rise or fall in dramatic double-digit bursts. On 9 August, the Moscow stock exchange halted trading in Yukos shares at 11:44 a.m. after their value had increased 23 percent to 135 rubles a share, regions.ru reported. The rise came on news that the Moscow Arbitration Court had invalidated a bailiffs' order to freeze Yukos's shares in Yurganskneftegaz, its main production subsidiary. However, the price began to fall as soon as trading resumed an hour later as rumors (later confirmed) swirled that the bailiffs had once again frozen the Yurganskneftegaz shares following the court order. On 10 August, the exchange again froze trading in Yukos shares at 2 p.m., after they had fallen almost 14 percent.

On 10 August, the Moscow Arbitration Court ruled paradoxically that the bailiffs' seizure of Yukos's shares of Tomskneft was legal and the same day it postponed issuing a ruling on the seizure of Yukos's stake in Samaraneftegaz until 2 September. Together, the three subsidiaries account for 96 percent of Yukos's total oil production, "The Moscow Times" reported on 10 August, meaning that the destiny of the entire company hangs on their fates.

Oil-sector analysts, noting the bailiffs' order to re-freeze the Yurganskneftegaz shares, emphasized that Yukos's fate will be decided in the Kremlin, not in the courts. "As long as the forceful line of settling the conflict with Yukos predominates, it is pointless to interpret positively any court decisions," analyst Stiven Dashevskii told "Vedomosti" on 10 August. "They will either turn out to be temporary or ethereal."

In a front-page article on 10 August, "Izvestiya" openly raised the possibility that some individuals could be using insider information to profit from the roller-coaster ride of Yukos shares. "Who has profited this time from the rise and fall of the shares, no one at the exchange could say. But they suppose that it is those who had information from the state organs," the daily wrote.

In the same article, "Izvestiya" reported that the Finance Ministry had confirmed earlier media reports that Yukos's tax debts will be distributed among Russia's poorest regions. "The money will be used in 2005 to form a fund to help 40 subjects of the federation," the daily reported, adding that "the money will be used to pay state-sector workers and to help the housing sector to prepare for the winter." It would be hard to imagine a more finely crafted populist gesture, one that is especially important as the government takes a public-opinion battering over its controversial plan to convert most in-kind social benefits into cash payments.

At the same time, world oil prices have reached record levels, in part because of concerns about the fate of Yukos. Russian producers have responded by boosting production. On 3 August, the Industry and Energy Industry announced that the country had reached a new post-Soviet production record of 9.3 million barrels a day. Production was up more than 10 percent for the first half of the year, "The Moscow Times" reported. The windfall has spurred GDP growth beyond the government's ambitious predictions, growth that has been almost entirely attributed to growth in the exports sector. Moreover, "Vedomosti" reported on 10 August that a leading Chinese expert said his country should give preference to dealing with state-controlled or Kremlin-friendly Russian oil companies. "Chinese oilmen must correctly choose a partner for energy cooperation," an analyst with the Chinese State Council said. "They must rely as partners on those companies that are controlled by the state or on those companies that have the confidence of the government." The analyst added that the government feels that Yukos's loss of control of its production subsidiaries could make it an unreliable partner. With uncertainty bringing so many tempting short-term benefits, it is little wonder that the Kremlin is in no hurry to make its intentions regarding Yukos clear.
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