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. Last Updated: 07/27/2016

UES Hit With $131M Tax Bill

VedomostiUES says it received the 2001 claim after a major tax inspection last year.
Electricity monopoly Unified Energy Systems said on Tuesday that it had been slapped with a 3.68 billion ruble ($131.3 million) 2001 back tax claim, the latest in a rash of such demands that has shaken market confidence.

The news emerged as financial markets nervously awaited the verdict in the trial of Mikhail Khodorkovsky, the former Yukos CEO founder facing charges of fraud and tax evasion.

Yukos, once Russia's most profitable company, has been crushed with a $27.5 billion back-tax claim, and markets are extremely sensitive to tax demands from other companies.

UES said on its web site that it received the tax claim after what it called a major inspection of its accounts in 2004. It said it went into litigation over the demand in a Moscow arbitration court, but that was thrown out in December.

An appeal by the company was also rejected in March, but it said the legal process was continuing.

"If the company loses, it will have to pay an additional 3.679 billion rubles to the budget," said a report on UES's nonconsolidated accounts for the first quarter of 2005.

UES shares were down 1.1 percent to 27.9 cents in the early afternoon.

The tax authorities have continued to strike companies with back-tax claims even after President Vladimir Putin said in a broadly pro-business keynote speech late in April that tax officials had no right to "terrorize" companies.

Several top companies in the energy sector have a tax threat hanging over them, including Russia's second-biggest oil firm, TNK-BP, which is facing a claim for almost $1 billion.

Russia's fifth-biggest oil firm, Sibneft, was reported by media to be facing a big claim, but a newspaper said last month that it settled out of court by paying some $300 million, less than a third of the original amount owing.

But in the case of UES, analysts said the tax claim was unlikely to hurt the company's prospects.

The claim is a tiny faction of UES's 2004 nine-month consolidated revenues of about $17 billion, and it is also lower than its 2004 nine-month free cash flow of around $270 million.

"I do not think this is significant. At the end of the day, they will negotiate and it will be over," said Shani Kogan, an analyst at Sovlink Securities.

Alexander Branis, chief investment officer at Prosperity Capital, which has around 20 percent of its $500 million assets in the Russian power sector, said that the government was trying to show that all companies were equal before the law. "I am not concerned about this claim. UES is a state-controlled company and I do not see any significant damage to it out of this," Branis said.

"The tax authorities are trying to inspect more companies and produce more claims so it looks like there is tax justice for all," he added.

A number of state-controlled companies have been hit with back tax claims recently. Moscow's state-owned Sheremetyevo Airport has received a $10 million back tax claim for 2001, newspapers have reported.

News agencies have also reported that Urengoigazprom, a unit of state-run gas monopoly Gazprom, was facing a 2001 back-tax claim for 2.3 billion rubles ($83 million).

"The government seems to be trying very hard to show that all oil and gas companies are equal before the law, a notion that we find ludicrous in the current environment," analysts at Troika Dialog said recently.

On Tuesday, Troika Dialog said it had raised its rating on UES after a fall in its share price. Troika put a fair value of 33 cents and strategic value of 35 cents on UES shares, more than 20 percent higher than the Monday closing price of 28.2 cents.