MOSCOW (CNN) - Embattled oil company Yukos said it is unable to meet a Wednesday midnight deadline to pay the Russian government a $3.4 billion back-tax bill and said bailiffs could begin taking control of its assets within hours.
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A Yukos official made the admission hours before the deadline at the close of a day dominated by reports the company was in last-minute talks to stave off bankruptcy. Its detained chief shareholder, billionaire Mikhail Khodorkovsky, was said by his lawyer to be ready to give up control of the firm.
"We are not in a position to pay and we have not paid," the Yukos official told Reuters. "This means bailiffs could start writing off funds from our accounts from Thursday and begin evaluating our assets to offer them at tenders or in direct purchase deals."
The affair is widely seen as being driven by President Vladimir Putin in a resolve to end Khodorkovsky's political ambitions and demonstrate to other wealthy businessmen that they should not work against the Kremlin.
Khodorkovsky's trial on fraud and tax evasion resumes next Monday. He has been in jail since last October.
Putin has pledged not to destroy Yukos but gave no comment on Wednesday, appearing at a news conference with Bulgaria's president but leaving before anyone could ask about the affair.
In what a senior U.S. diplomat describes as an "extraordinary game of brinkmanship," Yukos' dilemma is deepening. Tuesday, the Russian prosecutor general said the company is facing not only the demand from tax authorities for $3.4 billion in back taxes for 2000, but must also pay $3.4 billion for 2001.
The senior U.S. diplomat describes the showdown between Yukos and the Russian government as a "game of chicken."
"Signs are that the destruction of the company is the endgame," he said. This is "creating new anxieties among investors and damaging Russia's image abroad."
The last effects of the battle "won't be known until it is over," this diplomat said, but the case "clearly reflects deep animosity between Putin and Khodorkovsky and now other forces are at work moving according to their own logic."
The U.S. government, he says, "has always urged caution" for investors in Russia "because of the vagaries of its legal system but we've been urging an extra measure of caution because of Yukos."
In Washington, the Bush administration Tuesday called on the Russian government and Yukos "to arrive at a solution that resolves the case in accordance with the rule of law and due process, without undue influence from political considerations."
While not taking a position on the merits of the case, State Department spokesman Richard Boucher warned against "the destruction of one of Russia's largest energy companies, which has embraced Western practices of transparency and corporate governance."
Shares of Yukos rose as much as 20 percent during the day on reports of a possible deal. At close, the stock was up 13.7 percent at 227.91 roubles on Moscow's MICEX exchange.
-- from staff and wire reports
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