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October 4, 2004
Yukos to Be Sold for Fair Price ­ Russian Finance Minister Kudrin

On Saturday, Oct. 2, Russian Finance Minister Alexei Kudrin met with foreign investors in Washington, DC and told them that []Yukos Oil Company will be sold for a fair price, Interfax agency reported. Kudrin admitted that there is a lot of uncertainty surrounding Russia’s largest oil exporter, but blamed the situation on the company’s majority shareholders.

“In my view, considerable uncertainty is being caused by the majority shareholders,” said Kudrin.

The Russian finance minister reminded investors that President Putin has already said twice this year that the authorities have no goal of making Yukos bankrupt. Meanwhile, the majority shareholders “are saying all the time that they are going to announce bankruptcy,” said Kudrin.

The finance minister was twisting the truth somewhat, because all the recent announcements from Yukos emphatically stated that the oil company won’t announce its bankruptcy and will use every opportunity it has to stay afloat.

Commenting on the upcoming sale of some of Yukos’ assets, namely its biggest production subsidiary Yuganskneftegaz, Kudrin said: “The majority shareholders are saying that everything will be sold in the wrong way. But we shall see. I am sure that the sale of the assets will be based on transparency, competition and commercial results. I think this will provide answers to many questions.”

The authorities plan to organize an auction to sell Yukos’ biggest subsidiary in order to raise money to pay off the company’s outstanding tax debt. Yukos’ tax debt for 2000 and 2001 already stands at $7.5 billion, with approximately $2.5 billion of it paid off. The company may face other tax bills for 2002 and 2003.

Yuganskneftegaz is currently undergoing a pre-auction audit by the German investment bank Dresdner Kleinwort Wasserstein. The results of the audit leaked to the media a couple of weeks ago put a price tag of $15-17 billion on this production unit. Who will buy such an expensive, albeit profitable asset remains unclear. Russian companies have no such amount of free cash on their hands, and all of the major players, including TNK-BP, Gazprom, Surgutneftegaz and Sibneft have already ruled out any possibility of participating in the auction.

China could be a major contender capable of paying such a price, or even going higher in the process of bidding, but the Russian authorities still have not made up their minds as to whether they want to allow their southern neighbor to buy into the country’s oil industry.