<http://www.nytimes.com/2005/02/15/business/worldbusiness/15yukos.html?adxnnl=1&adxnnlx=1108483728-heXLleJqeTihXHXKQftqSg&pagewanted=print&position=>
The New York Times February 15, 2005 Russian Oil Politics in a Texas Court By ERIN E. ARVEDLUND OSCOW, Feb. 14 - Investors here will be closely watching a courtroom in Houston this week, where a judge is to decide whether a bankruptcy case pitting the embattled Yukos oil company against the Kremlin can proceed in the United States. Judge Letitia Z. Clark of Federal Bankruptcy Court in Houston will consider arguments on the court's jurisdiction Wednesday and Thursday, ruling on a motion to dismiss the bankruptcy case filed by Yukos, the Russian oil giant that has been under severe government pressure. Yukos filed for bankruptcy protection in the United States in mid-December in hopes of derailing the Russian authorities' auction of Yuganskneftegas, the company's largest oil-producing unit, to settle a huge back-tax claim. It won a temporary stay just before the auction, but the sale went forward, though with a shadow bidder. The auction essentially renationalized a large part of Russia's oil wealth. Yukos has promised "a lifetime of litigation" against any buyer of Yuganskneftegas. And a jurisdiction ruling in Yukos's favor, which would break legal ground and is considered somewhat unlikely, would clear the way for a flurry of legal actions that the company filed on Friday. These included a Chapter 11 reorganization plan, following up on its effort to get protection from creditors, and a suit against four Russian energy companies, seeking damages of at least $20 billion for their role in the sale of Yuganskneftegas. The suit named Gazprom; Gazpromneft, a former unit of that company; Baikal Finans Group, a shell company that bid for and won Yuganskneftegas at auction; and Rosneft, a state-run oil producer that soon bought Baikal along with its prized new asset. Yukos is seeking "in excess of $20 billion for their role in expropriating Yuganskneftegas in December 2004," the company said in a statement. Earlier last week, Group Menatep, a holding company set up by Yukos's jailed founder, Mikhail B. Khodorkovsky, and his partners, filed a notice of arbitration with the Russian government, saying it would seek more than $28 billion in damages, the amount the government says Yukos owes in back taxes. On Friday, Yukos asked the Houston court to order the Russian government to arbitration. A jurisdictional ruling in favor of Yukos could prolong uncertainty in the markets here and delay the Kremlin's moves to bulk up its favored energy champion, Gazprom, the natural gas monopoly that had been expected to snap up Yuganskneftegas. Gazprom was then expected to merge with Rosneft and scrap limits on foreign investment to finance big plans for production. In fact, neither Gazprom nor Deutsche Bank, the financier of the Gazprom bid, appeared at auction. The two were named in the Yukos lawsuit at the time, and filed the motion to dismiss the case, arguing that an American court had no standing in a Russian tax case. "This lawsuit against Russia should not be considered in a court in the United States," said Nikolai Krylov, a partner in the law firm of Winston & Strawn, who is representing Gazprom. "Hopefully, the case will be dismissed." Michael S. Goldberg, a partner at Baker Botts in Houston and head of its international dispute resolution group, also represents Gazprom. "It's hard to believe Yukos can win its lawsuit against the Russian government," he asserted. Yukos indicated that it would press ahead, regardless of the judge's decision this week. "If she rules that Deutsche's motion to dismiss is valid, then the case is over," said Michael Lake, a spokesman for Yukos from the public relations firm Burson-Marsteller, "and we have to determine whether to appeal and what are our other legal options." In the meantime, the government has tightened its grip on the energy sector, last week limiting the sale of natural resource licenses to Russian companies. The decision "is not unexpected and is part of the government's efforts to exercise greater control over the energy sector," said Christopher Weafer, chief strategist at Alfa Bank. Licenses for natural resources will be auctioned only to Russian companies or joint ventures in which a Russian company has a majority stake. The Ministry of Natural Resources is expected to auction 270 exploration licenses this year to increase oil and gas production. "We were disappointed by the announcement," a senior American diplomat said. "and we're going to find out if it's the last word on the subject. It could make it more difficult to develop the broader U.S.-Russia energy partnership and diminish Russia's ability to expand energy production into the next decade and beyond." Copyrigh -- ----------------- R. A. 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