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Russia: Just Who Is Baikalfinansgrup?

An unknown entity is in control of Yukos's greatest asset Prague, 20 December 2004 (RFE/RL) -- The question everyone in Russia is asking a day after an obscure company won a controlling stake in one of the country's largest oil producers is: Just who is Baikalfinansgrup?

Baikalfinansgrup (Baikal Finance Group), a mystery bidder with no known business activity in Russia, yesterday was pronounced the new owner of Yuganskneftegaz, the chief asset of Russia's Yukos oil company. The disposal represents a death blow for Yukos, whose founder Mikhail Khodorkovskii is in jail on charges of fraud and tax evasion.

In return for just over $9,3 billion, Baikalfinansgrup acquired 77 percent of Urals-based Yuganskneftegaz, a key asset of Yukos, formerly Russia's biggest oil company.

Valerii Suvorov, an official with the Urals branch of Russia's Federal Property Fund, announced the results less than 90 minutes after the beginning of the auction.

"I pronounce the bidder, which holds identification No. 1 and which offered the highest price...the winner of the auction," Suvorov said. "My congratulations."

The sale has sparked controversy and fuelled speculation that Baikalfinansgrup may simply be a front for state-controlled gas monopolist Gazprom or another company with ties to the government.

Liberal State Duma lawmaker Irina Khakamada said that only in Russia could "a completely unknown company with huge financial resources" win such an auction.

The acting chief of Russia's Federal Property Fund, Yurii Petrov, yesterday commented on the auction. He confessed to reporters that even he doesn't know much about the winner.

"No one will be able to answer that question because it is a surprise to all of us, as it is to you," Petrov said. "What I mean is that we know nothing about this company."

Baikalfinansgrup claims to be domiciled in the northwestern city of Tver, but Russia's "Vremya novostei" daily reported today that the company's address in its auction documents corresponds to a snack bar. The newspaper also reported that the company was legally registered just four days before the sale, on 15 December.
Russian observers agree that whoever is behind Baikalfinansgrup, the state cannot be far away.

Gazprom's oil producing subsidiary, Gazpromneft, was the only other participant in the auction -- but the company's representative declined to counter Baikalfinansgrup's bid. The result gave the stake to Baikalfinansgrup at a price many consider to be a bargain.

It's not clear why Gazpromneft declined to bid. The answer might lie in the fact the company was subject to an injunction by a bankruptcy court in the United States. The court on 16 December ruled to temporarily block all transactions involving Yukos's assets.

The Russian government said it would not recognize the jurisdiction of the U.S. court and would proceed with the auction. Observers speculated Gazprom may have been trying to minimize its legal liability by not taking an active part in the auction or by acting anonymously through a third party like Baikalfinansgrup.

The U.S. court order had led a Western banking consortium to withdraw an offer to lend Gazprom the money for the purchase of Yuganskneftegaz.

Gazprom has denied any connection to Baikalfinansgrup.

Russia's "Vedomosti" economic daily today quoted an unidentified Gazprom official as speculating that Surgutneftegaz -- another large company with ties to the Kremlin -- might be behind the deal. The official suggested Surgutneftegaz might have acquired Yuganskneftegaz to either resell it to Gazprom or to offer to develop it in together.

James Fenkner, director of research at the Moscow-based Troika Dialog Investment Bank, today suggested a possible explanation for the results of the auction.

"The general view within the market is [Baikalfinansgrup] was created as a result of the tax bankruptcy claims out of the U.S. in an attempt, on the one hand, to hold the auction as scheduled, because it would look bad for the Russian government to postpone the auction and, on the other hand, to allow, potentially, the beneficiary of Gazprom or Surgutneftegaz to eventually win," Fenkner said.

Surgutneftegaz, too, has denied any involvement in the sale of Yuganskneftegaz's shares.

Russian observers agree that whoever is behind Baikalfinansgrup, the state cannot be far away.

Russian authorities had demanded that Yukos sell its core assets at auction as a way for the company to pay back taxes.

Yukos disputed the tax bill and instead accused the government of trying to destroy it in order to harm the company's founder Mikhail Khodorkovskii. Khodorkovskii is currently in a Russian jail facing separate fraud and tax evasion charges that supporters say are unfair and trumped up.

Baikalfinansgrup now has two weeks to pay the $9.3 billion. If it fails to do so, a new auction could take place or Yuganskneftegaz's shares could simply be handed over to the state.

That might have been the aim all along.

Market analysts quoted by Russia's ITAR-TASS news agency today said they believe the aim of the auction was to deprivatize one of Russia's largest oil producers, while paving the way for the emergence of a new, state-controlled oil and gas giant.

(news agencies/RFE/RL)

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