Yukos THE LEX COLUMN:
There are only two certainties in life: death and taxes. Yukos is facing both
with a Dollars 3.5bn bill for back taxes and the possibility that the Russian
government wishes to push the oil group into bankruptcy.
Yukos believes allegations that it evaded taxes are "illegal, unfounded
and selectively applied". It is difficult not to sympathise. Yukos, like
other Russian companies, sought to optimise its taxes within the existing
legal structure. The Dollars 3.5bn bill for 2000, half of which is penalties
and interest charges, would not bankrupt the company. But with the
investigation widening - Yukos's London offices might be raided next -
the government could apply equally arbitrary penalties for subsequent tax
years.
Pushing Yukos, which contributed more than 4 per cent of government revenues
last year, into liquidation makes no sense. Re-nationalisation of the assets
would be a hugely retrograde step - in terms of the damage to Russia's
standing in international capital markets and probable losses of efficiency.
But the government's illogical stance only strengthens the belief that
the real issue is an increase in the political pressure on Mikhail
Khodorkovsky and other leading shareholders to relinquish control of the
company. It appears more than coincidental that Yukos was handed a huge tax
demand and its assets frozen as the date nears for Mr Khodorkovsky's
trial on fraud and tax evasion charges.
The affair is a test for the rationality of the Russian government. Opting
for the positive scenario, under which Yukos agrees a far smaller payment
with the tax authorities, requires an act of faith. Yukos shares are cheap -
15 per cent below a discounted cash flow valuation based on a 12.5 per cent
cost of capital and a long-term Brent crude price of Dollars 22.50. Rival
Lukoil trades at a 20 per cent premium to its DCF valuation. It is more
difficult to argue the shares have discounted a sufficient probability of
bankruptcy.
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RUSSIA IN FACTS
