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Sat, Jan 01, 2005 - Page 12 News List

China might get stake in former Yukos subsidiary

ENERGY A conditional offer could give China National Petroleum Corp a 20 percent stake in Yuganskneftegaz, signaling enhanced economic cooperation with Russia


A senior Russian official said on Thursday that China's state oil company could be offered 20 percent of a giant subsidiary of the oil company Yukos that was confiscated and sold 11 days earlier.

The offer, although still conditional, could give the China National Petroleum Corp a stake in a company that extracts 11 percent of Russia's oil, signaling deeper economic cooperation between Russia and China.

But the announcement only further muddied the circumstances of the auction of the subsidiary, Yuganskneftegaz, as well as the question of who will ultimately own what was once Yukos' main asset.

A newly created shell company called the Baikal Finance Group bought 76.6 percent of Yuganskneftegaz's shares on Dec. 19 with an uncontested bid of US$9.4 billion, far less than Yukos executives and other analysts have said it is worth.

That company was then purchased -- for an undisclosed amount -- by Rosneft, a government-owned oil company whose directors include the deputy chief of staff of Russian President Vladimir Putin.

Rosneft, in turn, is merging with Gazprom, the government-controlled energy monopoly, to create an oil and gas giant.

In a two-paragraph statement, however, Russia's minister of industry and energy, Viktor Khristenko, said the controlling stake in Yuganskneftegaz would now be transferred to a newly created state company and would not become part of the merger between Gaz-prom and Rosneft.

That merger would be completed in January, he said, but the subsidiary would not "be among the consolidated assets."

Khristenko's statement suggested the government hoped to shield Gazprom from lawsuits that Yukos' executives have promised to file in retaliation for what they say was an illegal expropriation in the guise of a tax claim.

Yukos already won an injunction from a federal bankruptcy judge in Houston that appeared to scare away prominent Western lenders that had been prepared to help Gazprom finance the purchase of Yuganskneftegaz.

A member of Yukos' executive board, Aleksandr Temerko, criticized the statement as part of the Kremlin's efforts to escape legal culpability for its role in dismantling Yukos.

"We view today's statement on plans dealing with Yuganskneftegaz as an attempt by certain people linked with Gazprom and Rosneft to avoid being held accountable for the illegitimate and flawed sale of Yukos' core asset," he told the Interfax news agency.

The Baikal Finance Group -- or, now, Rosneft -- has until mid-January to come up with the money to complete the purchase of the subsidiary, and the potential sources of that financing remain unclear.

China, where demand for oil is soaring and interest in Russia's natural resources has grown, could well be part of the answer.

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