$1.3bn legal blow for investors as Rosneft comes to market

More controversy for Russian giant as Total damages claims overshadow this week's float in London and Moscow
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The Independent Online

Russian oil giant Rosneft, whose controversial flotation takes place this week, faces $1.3bn (£700m) worth of legal claims from French company Total over a disputed joint venture.

The row is over the huge Vankor fields in East Siberia, which make up around 15 per cent of Rosneft's total estimated commercial reserves.

The dispute could scare off China National Petroleum Corp (CNPC), which is interested in buying a stake in Rosneft. It is thought that CNPC will buy shares only if it is given a stake in one of Rosneft's fields, with Vankor high on its shopping list.

The float has already been tarnished by a $14bn claim from Russian rival Yukos. But the emergence of legal action from a Western company will mire the deal in still greater controversy. It will also embarrass the Russian President, Vladimir Putin, who meets the heads of the G8, including France, at a summit in Moscow next weekend.

In 2002, Total signed agreements to buy majority stakes in the Rosneft subsidiaries that hold the licences for the 264sq km Vankor fields.

But Rosneft terminated the option agreements, arguing that they were void because Total failed to meet unspecified conditions. Total filed its first claim in a United Nations arbitration court in Brussels in 2004, demanding its share in one of the licences, or $640m in damages. A decision is expected this month.

In 2005, Total filed another claim in the arbitration court over two other Rosneft subsidiaries involved in the Vankor fields, seeking either stakes in the companies or $709m in damages. According to Rosneft's listing pros-pectus, final hearings on this claim are scheduled for Tuesday. "An award of damages could adversely affect Rosneft's financial condition," the document says.

Rosneft, which is contesting the claims, has not made any provisions for any damages that it may have to pay.

The company, which will raise around $10bn from its partial flotation in London and Moscow, has a valuation range of between $60bn and $80bn. On Tuesday, Rosneft will announce the final valuation figure. "Grey trading" in the shares will begin on Friday ahead of its formal debut on 17 July.

Yukos was forced to sell its main subsidiary for a fraction of its true value to pay a back-tax bill 18 months ago. The unit was bought by Rosneft amid allegations of state-sponsored theft.

Yukos has written to the Financial Services Authority asking the City watchdog to block the flotation, which it says involves the sale of "stolen goods".