Russian bailiffs order core assets of Yukos to be seized

Yukos faced its worst nightmare yesterday when bailiffs for the Russian government announced that they would seize the jewel in its crown - its main oil production unit in Siberia - and sell it for a fraction of its market value to recoup an unpaid tax bill of $3.4bn (£1.83bn).

Yukos faced its worst nightmare yesterday when bailiffs for the Russian government announced that they would seize the jewel in its crown - its main oil production unit in Siberia - and sell it for a fraction of its market value to recoup an unpaid tax bill of $3.4bn (£1.83bn).

The drastic measure sent shares in Yukos tumbling by up to 10 per cent on Moscow's Micex exchange and trading had to be suspended at one point. The seizure of the western Siberian daughter company, Yuganskneftegaz, appeared to mark the beginning of the end for the troubled firm once run by Mikhail Khodorkovsky, Russia's richest man, and confirms that the Kremlin intended to tear it apart piece by piece.

"It seems excessive. They've gone right to the heart of Yukos - it almost seems like a pre-emptive strike to destroy the company," said Stephen O'Sullivan, co-head of research at United Financial Group.

Mr Khodorkovsky, who is on trial for fraud and embezzlement, has already offered to give up his huge stake in the firm to pay the tax bill but the government appears to have ignored his proposal. Most Western observers believe that Mr Khodorkovsky, worth $15.2bn according to Forbes magazine, is being punished for his unsanctioned forays into politics; forays which he used to criticise the President, Vladimir Putin.

Its assets have already been frozen making it impossible for Yukos to pay off the tax bill by raising cash through an asset sale and now, according to analysts, it can only sit back and watch its own dismemberment. It may never recover from the loss of Yuganskneftegaz.

The subsidiary produces one in every eight barrels of Russian oil and is on its own the world's 13th or 14th biggest producer, outstrippingIraq. Yukos sources said it accounted for almost 60 per cent of the company's output and turned out almost 2 billion barrels every year. "It's like performing a heart transplant on a man with a cough," said Maxim Shein, an analyst at BrokerCreditService. "The sale of Yugansk will destroy the integrity of the company."

Company sources said they couldn't believe what was happening. "The international community should not allow the Russian government to get away with this," said one stunned executive. Another source said the bailiffs had indicated they intended to sell Yuganskneftegaz for $1.75bn, whereas analysts have valued it at $12bn and its oil reserves alone are worth some $30bn.