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10/21/04 - U.S. CONCERNED ABOUT YUKOS CASE - 2004-10-22


Russia's Justice Ministry is expected to auction off the Yukos oil company's main production unit, Yuganskneftegaz, next month. Proceeds from the sale will go toward paying off seven-and-a-half-billion dollars in back taxes and penalties that the Russian government says Yukos owes.

Lawyers for Yukos insist it used only legal tax loopholes that were also used by other oil companies. They also say the Russian government has singled the company out for prosecution for political reasons. Yukos' former chief executive officer, Mikhail Khodorkovsky, has been charged with a number of crimes, including fraud and tax evasion. He and another key Yukos shareholder have been in prison for nearly a year.

Russian media report that Yuganskneftegaz could be sold off in a single-bid, closed auction at a starting price as low as three-and-three-quarters-billion dollars. An independent valuation ordered by Russia's Justice Ministry found that the production facility is worth a minimum of ten-and-a-half-billion dollars. Non-government estimates place the value even higher.

U.S. State Department spokesman Richard Boucher says the reports that Yuganskneftegaz will go on sale at a starting price lower than its market value raise various concerns:

"One has to assume there is...some element of coercion or forced sale involved; and second of all...if sales are not made in the open market at fair market value, one has to assume there's an element of favoritism as well, and that affects people's view of the business climate."

Mr. Boucher said the United States is also concerned about the prosecution of Mikhail Khodorkovsky:

"It's a matter that we do think affects not only the view of Russia's human rights climate and judicial climate, but is also affecting the climate of investment in Russia, and therefore has implications for Russians not only on...the way their society is run, but also on their economy."

How the Russian Government handles the Yukos case is an indication of its respect for rule of law, transparency, and a fair and open climate for investors. It is in Russia’s own long-term strategic and economic interest to find a fair solution to its tax dispute with Yukos that avoids extreme actions and works toward a balanced repayment schedule.

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