Putin defends Yugansk sale

Russian President Vladimir Putin threw his weight behind the controversial sale of oil firm Yukos's core asset Yugansk yesterday despite a threat from the stricken company to escalate its legal battle in foreign courts.

A day after his finance minister said he knew nothing about the mystery winner of Yugansk at Sunday's auction, now in charge of 11 percent of Russian oil output, Mr Putin revealed the company's owners were individuals active in the energy sector for "many years".

"As far as I've been informed the auction conformed completely with current Russian law and I expect that all other activities in this area in the future will also take place according to law," Mr Putin said after meeting Chancellor Gerhard Schroeder in Schleswig, Germany.

Mr Putin did not identify the owners of Baikal Finance, which was unknown before it acquired Yugansk in Sunday's auction. The firm does not possess a single oil well or even a website and yet lodged the winning $9.4 billion bid.

He said China's state-controlled China National Petroleum Corp., which already has a cooperation deal with state gas monopoly Gazprom, may have a role in managing Yugansk.

"We do not rule out that CNPC may take part in working on this asset as well," said Mr Putin.

Russian newspapers linked Baikal Finance to No. 4 Russian oil firm Surgutneftegaz, sending its shares up 10 per cent on the RTS exchange and up four per cent on MICEX.

Surgut, run by reclusive businessman Vladimir Bogdanov, has denied any links to Baikal. Yesterday its officials were not available for comment.

Yukos stepped up the legal pressure, saying the sale violated a US bankruptcy stay.

It threatened legal action for $20 billion in damages against third parties participating in the sale, raising the prospect of oil cargo seizures abroad and adding to concerns over supplies from the world's second-biggest oil exporter.

Russian Industry and Energy Minister Viktor Khristenko said during a visit to Germany that he regarded such court actions as "pure interference in internal affairs of Russia".

He said western investors had nothing to fear from the case, given that it was driven by the need to observe tax laws.

Legal sources said Yukos may now seek to include Baikal in a US bankruptcy court restraining order. It filed for bankruptcy protection in Houston last week in a bid to stop the auction.

"It's going to be a legal quagmire. Yukos will tighten the net around the world. No oil trader or bank with assets in the United States will want to touch this stuff," said a Moscow lawyer. "Other courts will recognize the US jurisdiction too."

Another lawyer, Pavel Gratchev at the Moscow office of Italy's Pavia e Ansaldo, said Yukos's actions may prove futile.

The Yugansk auction is the culmination of a Kremlin campaign to crush Yukos's politically ambitious principal owner, Mikhail Khodorkovsky, and seize control of strategic sectors of the economy sold off in the chaotic privatisations of the 1990s.

Yukos, which has received $27.5 billion in back tax bills, lost more than a quarter of its market value since the auction and is now trading 95 per cent below its all-time high. Its share price fell to 14.5 roubles on the MICEX exchange yesterday.

Mr Khodorkovsky is charged with tax evasion and fraud and his fate is widely viewed as a lesson to Mr Putin's opponents not to cross him. Two other political opponents, media moguls Boris Berezovsky and Vladimir Gusinsky, have fled the country.

White House spokesman Scott McClellan said yesteray the Bush administration was disappointed that Russia went ahead with the auction of Yugansk.

"We have communicated to the Russian government repeatedly that its handling of the Yukos matter could have a chilling effect on foreign investment in Russia and affect its role in the global economy," he said.

In the first hints as to who might be behind the obscure Baikal, Russian dailies Vedomosti and Gazeta said mid-ranking Surgut manager Igor Minibayev represented it at the auction.

Vedomosti said Mr Minibayev's consultant at the sale was Valentina Komarova, a deputy in Surgut's financial department. Gazeta reported that the director of Baikal was Valentina Davletgareyeva, who also has ties with Surgut.