Oil markets breathe easy after Russia backs down


Fri, Jul 30, 2004 - Page 1

Russia lifted the threat of a halt of oil sales by the country's largest oil firm Yukos yesterday, prompting its shares to surge and easing tension on tight oil markets.

The decision followed a day of drama on Wednesday, when a warning by Yukos that an asset freeze ordered by bailiffs could hit oil sales by its operating companies, which pump one-fifth of Russia's oil, pushed US crude oil futures to record highs.

"The Ministry of Justice has recalled the ban on property alienation it had previously imposed on Yuganskneftegaz, Samaraneftegaz and Tomskneft," Yukos spokesman Yevgeny Fokin said in an e-mail to reporters.

Oil prices fell from record levels on relief that oil supplies from Russia -- the world's No. 2 oil exporter -- may not be disrupted. Poland and Hungary said there were no problems with Yukos deliveries.

Yukos shares rallied by over 20 percent after diving to three-year lows on Wednesday, but the shares pared gains later on to finish up 13 percent at 94 rubles (US$3.23).

"The companies themselves have regained legal control over their property, and above all the right to sell oil and carry out financial transactions," a Yukos source said.

But the source said an existing ban on fixed-asset sales by Yukos's operating units remained in force. Justice ministry letters released by Yukos confirmed that view.

The justice ministry denied any intent to disrupt Yukos's Siberia-based production operations. "The bailiffs' activities are aimed neither at blocking the bank accounts nor the economic activities of Yukos' subsidiaries," a spokesman said.

The apparent climbdown by the authorities may offer little respite for Yukos, which has said it could collapse by the middle of next month as bailiffs seek to recover a multi-billion-dollar tax debt while its bank accounts and assets are frozen.

A Yukos lawyer said the company would appeal a value-added tax demand which makes up US$1.6 billion out a total of US$7 billion in current and pending tax liabilities for 2000 and 2001.

"Yukos will demand zero-rate VAT," Yukos lawyer Dmitry Gololobov said. "If the inspectorate refuses to adopt the zero rate and to reimburse, we will appeal those decisions."

Bailiffs plan to sell Yukos' largest unit, Yuganskneftegaz, culminating what is widely seen as a Kremlin campaign to destroy the business empire of politically ambitious former chief executive officer Mikhail Khodorkovsky, who is on trial for tax evasion and fraud.

"We believe that the row over this bailiffs' demand to the Yukos subsidiaries will prove a sideshow," commented Christopher Granville at brokerage UFG.

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