Kremlin prepares to seize Yukos’s oil

July 10, 2004

The battle for control of Yukos, the Russian oil giant, has taken a fresh twist after it emerged that the country’s authorities have drawn up secret plans to seize control of the group’s oil.

The proposal – said to have been masterminded by Igor Sechin, the first deputy in president Putin’s administration – would entail taking control of Yukos’s oil as it is pumped through the country’s distribution network, Transneft.

It is understood that under the plan, instead of the oil being marketed to Yukos’s current traders, it would be diverted to a Kremlin insider and oil trader, Gennay Timchenko.

The proposal, believed to be among several alternatives currently being examined by the authorities, is in marked contrast to comments made by Putin last month that officials would do all they could to avoid the company’s collapse.

The discussions come as Mikhail Khordokovsky, the jailed oligarch and largest shareholder in Yukos, finally prepares to go on trial tomorrow on charges of tax evasion and fraud. On Friday bailiffs started to move in on the oil group after the authorities refused to give Yukos an extension on paying its $3.4bn tax bill.

“It is an illegal move because the law of Russia does not allow that production of oil should be seized by bailiffs,” a spokesman for Yukos said. “The law allows the arrest of accounts, the arrest of assets, and the sale of those assets. But it does not allow the arrest of production.”

However, an executive close to the Russian government said that Sechin’s plan to do just that is now the favoured option.

“Sechin’s plan has been competing with the plans of other groups in the Kremlin,” the executive close to the government said. “But it now looks like Sechin’s has the upper hand.

“Sechin has been drawing up the strategy for months,” he added. “The research has all been done. The paperwork and the planning are now all in place. It is only waiting for the president’s order for it to be enacted.”

A spokesman for Yukos said he did not believe the authorities would seize all the company’s oil right away. “They will take 20 per cent or 50 per cent and then increase it. They will not kill the company but slowly suffocate it.”

The oil group has drafted in Lord Owen, the former British foreign secretary and Balkans peace negotiator, to give advice to the board. Owen has been chairman of Yukos’s international arm in London for two years but is offering further advice as the group struggles to stave off bankruptcy.

Executives close to Yukos stressed yesterday that Sechin’s plan was still one of several being examined – others include breaking up the oil group or even bringing in international investors – but nevertheless conceded that the pressure is mounting.

The oil trader who would take over the marketing if Sechin’s strategy wins has – like Putin and Sechin – a KGB background, according to a member of the Russian security service.

He is also believed to be a friend of Putin’s. “He is very close to Vladimir Putin, they have very good personal relations,” the security service member says.

Timchenko was an oil trader at the main St Petersburg refinery when Putin was vice mayor of the city and has for years been handling “external relations” for many of Russia’s business groups. He now has his company offices in Geneva.

Timchenko is close to Rosneft, the state oil company, and is a shareholder in Surgutneftgas, which owns the St Petersburg refinery, and is headed by another Putin ally, Vladimir Bogdanov. He trades oil for Rosneft and has represented Lukoil, Oneximbank, Rossiya Bank and Severstal, the steel producer, among many others.

“Timchenko has already been in talks with Transneft about handling Yukos’s oil,” a government source said. “All the documents are prepared. All they need to do now is hand over the documents to Transneft. It is all pre-planned.

“If this strategy goes ahead we will see where power lies currently in the Kremlin – with Sechin.”

However, some analysts have warned that a collapse of Yukos would hit the economy hard and could deter investors. They also raise concerns that the case will highlight the corporate governance risks associated with doing business in Russia.

“We are now talking with government officials up to the level of vice premier. There are some people in government who, while not being particularly sympathetic to Yukos, recognise that this will damage the country’s economy,” the Yukos spokesman said.


Tags: Fossil Fuels, Geopolitics & Military, Globalisation, Oil