Yukos Distances Itself From Last Key Owner
By Valeria Korchagina and Catherine Belton
Staff Writer
MOSCOW - Oil major Yukos on Monday ramped up the damage control, distancing itself from its troubled group of core owners by announcing that it had dismissed Mikhail Brudno, the last key shareholder to hold a management position. The move came just days after prosecutors announced Brudno and other core Yukos shareholders, including the company's co-founder Leonid Nevzlin, had been placed on an Interpol wanted list on embezzlement and fraud charges. It came too as the company said it would move to end the use of so-called tax optimization schemes to lower taxes, a practice that has already resulted in $3.4 billion in charges for 2000. Tax Minister Yury Bukayev, meanwhile, said last week that similar tax bills could be in the making for the years 2001, 2002 and 2003. Company executives Monday made clear they wanted to pull Yukos clear of the politically-charged probe surrounding core shareholders, which many observers see as being a force behind the mounting tax inquiry into the company. "The decision to dismiss Mikhail Brudno has primarily been prompted by our drive to rigorously follow international standards of corporate governance and to guarantee all shareholders a completely independent management," said Yukos CEO and Board Chairman Simon Kukes in a statement released Monday. The company said Brudno had been replaced as head of marketing and refining (RM) by his deputy Pytor Zolataryov, who is now acting RM president. Brudno is sought by prosecutors for allegedly embezzling $2.8 million from the Apatit fertilizer plant, controlled by Yukos parent company Group Menatep, and is reported to be on a business trip abroad. Yukos said the move came after its board recommended on Thursday that core shareholders should not interfere in the management of the company. A source close to Yukos said Monday that the company wanted to extract itself from the political conflict core shareholders are embroiled in. Analysts said Monday's moves appeared to come as part of a bid to stave off any further attack on the company's operations and assets. "Yukos as a company is outside politics, which means that if Nevzlin says he is supporting an opposition candidate for presidency, then this is just the opinion of one shareholder and has nothing to do with Yukos," the source close to Yukos said. "To speak about core shareholders as one group in some cases is inappropriate." Nevzlin said last month he would support opposition candidate Irina Khakamada's run in this March's presidential elections. The former leader of the Union of Right Forces is running on a strong anti-Putin ticket. Nevzlin's statement appeared to attract immediate consequences. Just days after he made the statement, prosecutors announced he and nine other core Yukos shareholders and senior executives had been placed on the Interpol wanted list for large scale fraud and embezzlement. Khakamada, however, told The St. Petersburg Times on Monday that she has not received any support from Nevzlin, who is now in exile in Israel, and has no plans to do so in the future. Yukos management, nevertheless, appears to be concerned. The source close to Yukos said the move to dismiss Brudno was an attempt to underline the company's independence. "The move reflects an analysis that, in some cases, the interests of the company minority and majority shareholders dovetail, but in others the interests might be diverging," the source said. "We want to make sure there are no conflicts of interests." The source confirmed Monday that Yukos plans to cut back dividend payments in order to pay more taxes, a move that further drove home the company's push to move away from the conflict. He confirmed a report published in Vedomosti on Monday that cited unnamed Yukos officials as saying it intended to close down tax optimization schemes that made use of loopholes to minimize taxes. "This is an action plan that the company will deliver on," he said. Yukos spokesman Alexander Shadrin said the board would discuss the issue at the next meeting scheduled for Feb. 26. The company cannot make the policy changes without approval from the board because it is likely to have a major effect on its bottom line. Shadrin said the move would not affect the $2 billion in intermediary dividends scheduled to be paid out by the end of February. Analysts, however, said Monday the company's moves to extract itself from the mushrooming affair may come as too little, too late. "As for giving up on tax optimization schemes, they should have realized that two or three years ago," said James Fenkner, head of research at Troika Dialog investment bank. According to the company's latest financials released Friday, Yukos was still making maximum use of tax minimization schemes in the third quarter of 2003, with its effective tax rate well below the statutory rate of 24 percent, analysts said. Analysts said Yukos management could be fighting a losing battle despite Monday's moves. Yukos is trying its best to spin things well, saying production is going to be up and that the negotiations with the Tax Ministry went constructively... But it's very clear they are clinging on by their fingernails," said Adam Landes, oil and gas analyst with Renaissance Capital investment bank. The company is also facing a potential takeover attempt by core shareholders of the Sibneft oil company, with which Yukos attempted to merge last year. The merger process went through on paper, giving Sibneft core shareholders a 26 percent stake in Yukos and making them the largest shareholders in the company not in jail. The source close to Yukos, however, denied on Monday that Sibneft was attempting to gain management control over the company. He denied that any of Monday's moves came as a result of Sibneft pressure. "They have no leverage whatsoever," he said. Sibneft agreed. "The former Sibneft core shareholders are not involved in Yukos day-to-day operations. Sibneft operates independently as per its agreement with the Yukos shareholders," said Sibneft spokesman John Mann. A spokesman for Group Menatep, the holding company that manages the assets of Yukos' core shareholders, said Yukos' moves to distance itself were not a threat to them. "Yukos has been moving towards the withdrawal of its shareholders from daily operations for some time. The intention has been stated in the past by [former Yukos head Mikhail] Khodorkovsky and [co-core shareholder Platon] Lebedev," said Group Menatep spokesman Yury Kotler. Lebedev was the first Yukos shareholder to be jailed. He was arrested on July 2 last year on charges of alleged fraud during the privatization of the Apatit plant in 1994. Khodorkovsky was arrested on Oct. 25. He is facing seven charges related to fraud and tax evasion. Other Yukos key shareholders too have been charged with embezzlement, tax evasion and fraud. "Shareholders should only influence the strategy. So, although in the current very politicized situation, the decision could provide various readings, it is in fact an absolutely normal way," he said.
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