#7 - JRL 8507 - JRL Home
December 20, 2004
Menatep Promises Years of Litigation
By Guy Faulconbridge
Yuganskneftegaz's new owner and the Russian state could face years of litigation, as lawyers for Yukos' core shareholder threatened to seek billions of dollars in damages in courts around the world.
In the government's drive to recoup a multibillion-dollar tax claim, the oil major was stripped of its core production unit in the biggest and most controversial asset transfer since the privatizations of the 1990s.
Baikal Finance Group, the unknown company that won Sunday's auction, is probably being used by Gazprom or an entity close to the Kremlin to avoid legal obstacles, investors and analysts said.
"Whoever bought Yugansk just bought a big headache for $9.4 billion," Yukos spokesman Alexander Shadrin said after the auction. "We consider the sale illegal and we will be fighting it in courts, going after buyers, the sellers and those who provided funding for the purchase."
Gazprom and Surgutneftegaz, two energy companies tipped to bid for Yugansk, denied links to the company.
Lawyers for Group Menatep, which owns a controlling stake in Yukos, threatened legal action around the globe against the government, the buyer and "any entity that facilitates the auction by way of financing or assistance."
Those legal claims could include the arrest of government property abroad and -- should Gazprom turn out to be the buyer -- gas exports and oil pumped by Yugansk, said Sanford Saunders, a lawyer representing Menatep.
"We have experience chasing oil that has been produced in other countries and seizing it," he said. "You have to peel the onion to find the true owners of the natural gas or the oil -- and we will do so and go after them."
Yukos has already resorted to a foreign court in its struggle with the authorities. Last week Yukos tried to stop the Yugansk auction with an eleventh-hour bankruptcy filing in a Houston court.
Though the surprise move did not push the government to put off the auction, a restraining order late Thursday by a U.S. bankruptcy judge scared off big international lenders such as Deutsche Bank from lending Gazprom $13 billion for the bid. Investors said Russian banks, or the state, would step in.
While the judge said in a memorandum that the tax claims against Yukos "were not conducted in accordance with Russian law," the government has responded that the court has no jurisdiction in Russia.
"It is like a court in Sakhalin forbidding the hearing of the Enron case," said Nikolai Krylov, a partner at Winston & Strawn, which represents Gazprom.
Gazprom appealed the restraining order on Saturday, but U.S. District Judge Nancy Atlas upheld the ruling.
Menatep lawyers were quick to point out that Gazprom's appeal is a de facto acknowledgment that U.S. bankruptcy rulings do apply to Russia.
With the Texas case and threats of legal action worldwide, the Yukos saga is increasingly insinuating itself into global politics.
Two of Houston's most illustrious law firms have become involved in the case. Gazprom is being represented by Baker Botts, which is linked to the Bush dynasty through its partner, former U.S. Secretary of State James Baker. Yukos has hired Fulbright & Jaworski, whose second name comes from the special prosecutor in the Watergate scandal.
Yukos, however, is also not immune to lawsuits from angry shareholders who have lost billions as the company's value has tumbled toward zero. Over the summer, at least eight different law firms acting on behalf of shareholders filed suits in the United States against Yukos.
Other shareholders have aimed their wrath at the Russian government. Last month Swedish investors threatened to take the government to international arbitration for their losses.
The pursuit of a sovereign state by legal instruments can cause serious problems for that country's government.
The Swiss firm Noga fought with the Russian state for years, claiming Moscow owed it millions of dollars. As a result, bank accounts held by the Russian Embassy in Paris and Russian fighter jets were temporarily seized.
"This could be the start of eternal lawsuits against Gazprom and the Russian state. It could be the next Noga -- only bigger," said Nikolai Grammatikov, managing partner at Grammatikov & Partners, a Moscow-based law firm.
Arresting commodity exports is likely to be hard to achieve in Europe, which is increasingly dependent on gas from Gazprom. But if the gas behemoth turns out to be behind the winner, it could face legal problems in the United States just as it plans to initiate ambitious projects in North America.
"Menatep is going to fight it to the end. Its entire policy has been to do maximum damage to the Russian state. It has been a bad calculation, but they show little signs of changing course," said Eric Kraus, chief strategist at Sovlink Securities.