Future of Yukos to be decided soon

The price of Yukos shares is reacting to news by jumping up and down. The news is not all good, but the market views some of it as encouraging.

In mid-May, the Arbitration Court of Moscow suspended the decision of the Ministry of Taxes and Duties on the collection from Yukos of 99 bln roubles in tax arrears and penalties. This sent Yukos shares up, but not for long. The court will convene on May 28 to hear the claim of Yukos against the ministry's actions. Until then, the latter cannot demand anything from the oil company, though some say this will not seriously affect the case.

The bad news is that Yukos has received yet another notification of possible default, this time from its largest shareholder, Group Menatep, which owns 52% of Yukos shares. In September last year, the group loaned to Yukos $1.6 bln with the assistance of Societe Generale. Since then, Societe Generale has withdrawn from the deal, making Group Menatep the largest creditor of Yukos.

Experts believe that Yukos is deliberately taking loans from related bank structures as a kind of security against bankruptcy. The choice of provisional administrator and the contents of the peace agreement will depend on the chief creditor.

The above means that the Yukos management is not sitting on its hands but is playing for time, trying to find a way of settling its problems with the authorities. Yukos apparently does not want to aggravate its difficulties with the authorities and would like to settle them quietly and possibly privately.

Viktor Gerashchenko, long-time head of the Central Bank of Russia, whom Yukos shareholders plan to elect chairman of their board of directors at a June meeting, raised the veil of secrecy from the Yukos tactics. That patriarch of the Russian banking business believes the sides should "sit down at the negotiating table to consider the matter reasonably." To all appearances, the banker has not abandoned all hope of slashing the staggering sum of 99 bln roubles claimed by the Ministry of Taxes and Duties.

"Fines, penalties... Why does it take the ministry so long to check on its basic taxpayers? So much time has elapsed, yet they continue to increase the fines. Why not say the ultimate sum right out?" says Gerashchenko, who has not been elected to the Yukos board yet but is already busy with its problems. His statements seem to show that the company shareholders are prepared (and would prefer) to pay a reasonable sum and remain, as Gerashchenko said, "in the business which is interesting to them and where they are working successfully."

The main question asked in Russia in connection with the Yukos case is, "Will Yukos go bankrupt or not?"

Optimists are calculating: Yukos' net profit for 2003 was $2.5 bln and it can get another $3 bln by reversing the deal with Sibneft. It has $2.3 bln on its accounts and loaned $4 bln (including $3 bln from related structures). The imputed tax arrears are $3.5 bln. If Yukos convinced the Ministry of Taxes and Duties to restrain its appetite, it will survive, say optimists.

Pessimists argue, "Why have you decided that the ministry will not advance new claims?"

In this situation, nobody is ready to make forecasts. Yukos shareholders and big business advocates hope that all the problems can be solved provided the authorities show some goodwill.

Optimists rely on common sense and the principle of reasonable attitudes. Yukos is a large and highly successful company that employs hundreds of thousands, pays billions to the federal budget, and is involved in charity work. Besides, it has had its share of intimidation and will be no longer dangerous to the authorities. The insolvency of Yukos or even simply the disorganisation of its work would deliver a blow to the emerging Russian economy, not to mention its image in the West.

The future of Yukos and its former CEO Mikhail Khodorkovsky, who is sitting in Matrosskaya Tishina prison in Moscow on charges of economic crimes, should be decided in May or June.