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Russia to Sell Off Key Part of Embattled Yukos Oil Company

The Russian government says it will auction off the main production unit of embattled Yukos Oil next month as part of its long legal battle against the company and its former director, Mikhail Khodorkovsky. The starting price is far lower than expected in a case that many see as politically motivated.

Russia says it will sell off the production facility known as Yuganskneftgaz for $8.6 billion to help settle a bill for back taxes it says Yukos owes the government.

This is substantially lower than the $10.4 billion price announced previously, which itself is only half of what Yukos and many financial analysts say the Siberian oil facility is really worth.

The lower price has added to fears that someone linked to the government may acquire the oil unit for a bargain price in a case that is already mired in controversy.

Yuganskneftgaz pumps 60 percent of the oil produced by Yukos, Russia's largest oil company, which has been mired in a drawn-out legal battle with the authorities over how to pay billions of dollars in back taxes.

But critics say freezing the company's bank accounts and seizing what some say is the "crown jewel" of the company will effectively dismember Yukos and hand it over to those with insider connections.

Alexei Kandaurov is a deputy in the Russian parliament and former head of Yukos' analytical department.

Mr. Kandaurov says the decision to sell the production unit is a continuation of the political show called "the fight against the oligarchs", or the public whipping of Yukos. He adds that this is a bad development for Russia, particularly its investment climate.

The announcement of the sale comes just days after the government issued an arrest warrant for Yukos' chief lawyer and added billions of dollars more onto its back tax bill.

Tax authorities claim Yukos owes more than $18 billion, with another $6 billion likely to come soon.

The legal battle is unfolding parallel with a criminal trial of Yukos' former director Mikhail Khodorkovsky, charged with fraud and tax evasion.

Mr. Khodorkovsky was arrested just over a year ago in a case critics say was brought because he was funding opposition political parties and seeking to break the government's monopoly on the construction of oil pipelines.

Mr. Khodorkovsky is one of the so-called "oligarchs" who amassed tremendous fortunes a decade ago by taking control of formerly state-owned assets, especially oil companies.

The affair has rattled Russia's financial markets and raised concerns about Russia's commitment to judicial procedures and free market reforms.