Russia: China to Cover Yukos' Rail Fees

Associated Press
08.18.2004

China has agreed to step in and pay Russian rail fees to ensure that it continues to receive Yukos oil if the company is unable to cover the transport costs, officials at Russia's rail transport monopoly said Wednesday.

"China will pay for everything if Yukos encounters problems with payment," said Russian Railways president Gennady Fadeyev, according to the Interfax news agency. Russian Railways spokesman Anton Shapovalov confirmed that China promised to pay.

Yukos sends about 124,000 barrels of crude every day by rail to China, which is already the world's No. 3 oil importer and has seen its consumption increase annually as the economy grows.

Facing a crushing $3.4 billion back taxes bill, Yukos has warned that bankruptcy and production cuts might be just around the corner. Its bank accounts are frozen and it is prohibited from selling assets to raise money.

Yukos shares plunged Wednesday on Russia's ruble-dominated MICEX exchange, causing officials to halt trading twice. The company's shares closed down about 12 percent on both MICEX and the dollar-dominated RTS exchange.

The drop followed the Moscow Arbitration Court's rejection late Tuesday of Yukos' appeal of a decision by bailiffs not to use the company's 30 percent stake in the Sibneft oil company as collateral for the tax bill.

In another blow to Yukos, a Moscow appellate court on Wednesday overturned an earlier ruling that bailiffs had acted illegally by seizing the company's main subsidiary, Yuganskneftegaz, the Interfax news agency reported. Bailiffs had already circumvented the earlier decision, however, by using different arguments to impose a fresh seizure.

Yukos so far has managed to pay off only $750 million of the 2000 bill, and Yuganskneftegaz is being evaluated for sale. Authorities also have been investigating Yukos tax records for the following years, and observers say the total debt could grow to $10 billion.

Fadeyev told Interfax that Yukos has already paid about $24.1 million in rail fees, which should cover its shipments through September. Company officials have repeatedly warned, however, that Yukos' ruin might come even sooner.

The web of legal cases against Yukos and its jailed founder, Mikhail Khodorkovsky, are seen by observers as an attempt to punish the oil tycoon for meddling in politics. The Kremlin has cast the affair as a crackdown on shady tax schemes and corruption. Yukos denies those allegations.

Khodorkovsky, arrested in October, is on trial along with business partner Platon Lebedev on charges including fraud and tax evasion. The court is expected to begin hearing prosecution witnesses Thursday.

Yuri Shmidt, a lawyer for Khodorkovsky, said Wednesday that he was puzzled by the "quite unexpected" announcement from prosecutor Dmitry Shokhin that he had finished presenting evidence and was ready to question witnesses.

"One has the impression that a decision was made to speed up the hearing of the case," Shmidt said, adding that before he "had a feeling that the process was consciously being drawn out."

The Yukos affair has drawn concern from foreign governments. Many analysts have also warned that continuing uncertainty about the outcome may hurt foreign investment.

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