updated 7/22/2004 8:45:34 AM ET 2004-07-22T12:45:34

Yukos warned Thursday that a state-forced sale of a daughter company to pay back taxes could force Russia's largest oil producer to file for bankruptcy.

The statement followed this week's announcement by bailiffs that Yuganskneftegaz, Yukos' largest production unit, was being readied for sale.

Yukos owes the government $3.4 billion in taxes for the year 2000 and says it does not have enough cash to pay the bill. Yukos shares dropped some 12 percent in trading in Moscow within minutes after the company statement.

The company also faces a tax claim of $3.3 billion for 2001 and further large bills are expected.

Yukos, which is blocked by court order from selling assets itself to meet the tax payment, has sought compromises including being allowed to pay the 2000 bill over the course of three years. However, the government has shown no apparent willingness to compromise.

The government's stance has raised speculation that its ultimate goal is to carve off major pieces of the company, possibly to sell them into Kremlin-friendly hands.

The tax bill is part of a series of legal actions against Yukos and its former CEO Mikhail Khodorkovsky that many analysts see as a Kremlin-initiated drive to punish him for funding opposition political parties and to stifle his own presumed political ambitions.

Khodorkovsky has been jailed since October on charges of fraud, forgery and tax evasion. The trial of him and a close associate, Platon Lebedev, is under way in Moscow.

Yukos accounts for about 20 percent of Russia's oil production and employs more than 100,000 people. Its disintegration could affect production of Russia's prime export commodity and undermine Russian President Vladimir Putin's prestige abroad.

Copyright 2004 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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