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Subsidiary undermines LUKoil's reputation

MOSCOW, June 10 (RIA Novosti) - Russian regional oil company Naryanmarneftegaz (NMNG), a subsidiary of current leading national oil producer, LUKoil, was slapped by a $1.46-million tax bill for February-March 2004 Thursday - something likely to lead to a criminal investigation against NMNG's top management - and could undermine LUKoil's plans to convert NMNG into a joint venture with its U.S. shareholder ConocoPhillips, Gazeta, a daily, reported.

Tax authorities say NMNG had knowingly provided false information to minimize its tax claims, something the oil giant will contest in court. LUKoil spokesman Dmitry Dolgov said the dispute had been brought to the arbitration court.

LUKoil chairman Vagit Alekperov admitted for the first time in April that back tax claims for 2002-2003 against his company were a possibility. Later he claimed nothing illegal was found in LUKoil's statements, but the tax authorities landed a punch via his subsidiary.

Though Alekperov's April announcement cost the company $900 million in market capitalization, the stocks did not respond to yesterday's calamities and closed up at an increase of 0.43%. NMNG's tax bill is grossly overshadowed by those of Sibneft ($300 million), TNK-BP (around $1 billion) and Yukos ($27 billion).

However, the bill could affect LUKoil's reputation as a company that, according to vice president Leonid Fedun's announcement last year, dropped all, including legal, tax optimization schemes - a commitment the subsidiary's managers seem to have overlooked.

ConocoPhillips promised to invest $500 million in a joint venture on the basis of NMNG. Conoco is unlikely to retract its promise, but could be more cautious about its future dealings with LUKoil.