Yukos Production Unit Sold at Auction to Baikal Finance Group

The Russian government sold off Yuganskneftegas, the awkwardly named operating unit of oil giant Yukos, at auction Sunday for back taxes. Yukos, owned and controlled by a group called Menatep (which itself is controlled by Mikhail Khodorkovsky who's in jail), had filed for bankruptcy in New York under US law. The sale violated a US court's restraining order, but since that court's jurisdiction doesn't really extend to the Kremlin, the sale looks like it will stand. This may, someday, improve oil supplies globally, but not yet.

The troubles here all stem from what the Kensington Review has identified as a Russian politics as usual. The Tsar would maintain his position by beating up on the boyars who themselves were trying to aggrandize themselves at the expense of the serfs. Replace Tsar with President Putin, boyars with post-Soviet business leaders, and serfs with everyday Russians, and nothing else need change. Mr. Khodorkovsky is in jail for spending his ill-gotten oil money on opposition political parties in 2003. He, of course, could be tried for theft of the country's entire oil industry, but that is another issue.

Menatep's legal flailings in the west ensured that the banks and potential western buyers of Yuganskneftegas (which pumps 1 million barrels of crude a day) stayed out of the auction, but Russian firms operating in Russia don't necessary care a fig for what some New York judge says. In all honesty, this de facto nationalization appears perfectly legal under international law. Yukos may or may not actually owe the back taxes that are claimed, but no judge has said it doesn't. It hasn't forked over, so the Russian tax authorities are perfectly within their rights to sell it off. American bankruptcy law doesn't really apply to stolen assets.

What is interesting is the purchaser. Baikal Financial Group is unknown even in Russia. The conspiracy theorists believe it is a front for Gazprom, the state-run gas company. But this makes no sense as Gazprom was one of the four registered bidders for the assets in its own right. On auction day, Gazprom and Baikal turned up, the other two registrants didn't, and Baikal was the only firm to bid -- the ruble equivalent of $9 billion.

Baikal Finance Group, which seems to be based in the Tver region north of Moscow, may see legal cases brought against it by Menatep throughout the west. Yet, that won't mean much to a company that apparently has assets only in Russia. Mr. Khodorkovsky may try to impound the oil exported, but there will be a buyer wanting the oil who may counter-sue, thereby doing Baikal's work for it. And if Baikal loses any cases in non-Russian courts, there seem to be no assets to attach that aren't under Russian jurisdiction. It looks like game, set and match to President Putin -- and after the Ukrainian elections, he rather needed a win.

© Copyright 2004 by The Kensington Review, J. Myhre, Editor. No part of this publication may be reproduced without written consent.

Home