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The Herald

Italian giants win auction of Yukos assets
MARK SMITH, Deputy Business EditorApril 04 2007

Italian energy giants Eni and Enel yesterday won an auction for a group of assets belonging to Yukos, the bankrupt Russian oil behemoth - including a key 20% stake in Gazprom's oil division and the Arcticgaz company.

However, the Italians quickly offered to bolster the Kremlin's control of the energy sector by selling some of its newly-acquired assets to state gas monopoly Gazprom.

It was the first time foreign firms have purchased assets of Yukos at a series of controversial auctions aimed at liquidating the company, which was driven into bankruptcy after it was hit by billions of dollars in back-tax bills.

Observers have said the tax campaign and the parallel jailing of billionaire former owner Mikhail Khodorkovsky were orchestrated to seal state control of Russia's hydrocarbons and punish a perceived political opponent to President Vladimir Putin.

Acting through a joint venture - EniNeftegaz - the Italian companies won the auction with a bid of $5.8bn (£2.9bn). The lot also included a 20% stake in the Urengoil and Arcticgaz gas firms, as well as a bundle of smaller assets.

In a statement, Eni touted the deal as the company's "entrance into the Russian upstream market as a major player".

Paolo Scaroni, Eni's chief executive, called the deal "a major step forward in Eni's strategy of securing reserves in the world's leading hydrocarbon producing countries".

The Kremlin is not behaving as if it believes what it is doing is legitimate

In line with an agreement reached by Eni and Gazprom last November, the Italian company said that Gazprom had been offered the option of buying a 51% interest in three companies including Arcticgaz and Urengoil within two years. The companies own five gas and oil fields and parts of three others in the Yamal Nenets region, the statement said.

Eni also granted Gazprom a similar option for buying a 20% stake in Gazprom Neft, Russia's fifth-largest oil company, for $3.7bn Soon after the auction, Alexander Medvedev, Gazprom's deputy chief executive, said the company planned to take up the offer.

"Its not all one-way traffic," said Roland Nash, head of research at Renaissance Capital. "There is a role for foreign institutions to invest in the Russian hydrocarbons sector - just under Russians' terms."

Despite a lack of real competition, the Italian companies had added "legitimacy and prestige" to the auctions, Valery Nesterov with Troika Dialog said. On the one hand Eni and Enel have, at least temporarily, acquired new reserves to book, he said. On the other, Gazprom can tie up the deal later and keep funds free for bidding in the more juicy auctions of Yukos' remaining production and refining assets.

The Italians' participation has also insulated Gazprom from any possible legal repercussions from the sale that might be initiated by Yukos shareholders, he said.

"Now Gazprom has one headache less," Nesterov said.

The sale prompted a harsh response from Khodorkovsky's lawyers. "Watching Gazprom jumping through hoops to avoid participating in this auction demonstrates their knowledge of their own guilt," Khodorkovsky lawyer Robert Amsterdam said.

"The Kremlin is not behaving as if it believes what it is doing is legitimate."

Other bidders at the auction included a reported affiliate of the Russian private natural gas producer Novatek and a subsidiary of state-controlled oil company Rosneft. Another Rosneft subsidiary last month bought at auction a near-10% share in Rosneft that had been held by Yukos.

Yukos' main production unit, Yuganskneftegaz, was sold at auction in 2004 to a shell company that was purchased by Rosneft shortly afterward, propelling it to the number three Russian oil producer.

The company, together with Gazprom, is expected to dominate the auctions of Yukos' remaining assets: the Tomskneft production unit and three refineries go on the block in early May.


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