The Siberian unit is expected to be sold on 19 December.

Yukos slammed the sale of Yuganskneftegaz as state-sponsored theft, designed to strip its main owner Mikhail Khodorkovsky - on trial for tax evasion and fraud and facing up to 10 years in prison - of his main asset.

The sale would mark a climax in a 16-month-old battle between the Kremlin and the politically ambitious tycoon which has damaged investor conference in Russia and helped push world oil prices to historic highs.

"Yukos as we know it can never look the same again," said Adan Landes from Renaissance Capital. "We have reached a point of no return for the company and the Kremlin."

Billions in taxes due

Analysts said the price, at the low end of an independent valuation but above the most pessimistic expectations, would still allow the state to sell more Yukos assets later to recover its tax debts, which were jacked up to $24.5 billion on Friday.

"Yukos as we know it can never look the same again. We have reached a point of no return for the company and the Kremlin"

Adan Landes,
Renaissance Capital

They tipped gas monopoly Gazprom as front-runner, while bankers and Western executives said foreigners, although allowed to bid, were likely to be deterred by the legal and tax risks that a Yugansk purchase would entail.

Yukos produces a fifth of Russian oil or 1.7 million barrels per day and Yugansk is responsible for 60% of its output.

"The starting price bears no resemblance to the true value of Yugansk, one of the world's premier oil producing firms, and amounts to theft of Yukos assets," said Yukos Chief Executive Officer Steven Theede.

Tumbling shares

Yukos shares fell 31% by 14:20 GMT to $2.05, their lowest since early 2001, on news of the sale and a new tax claim of $6 billion for 2003 in addition to existing demands of $18.5
billion for preceding years.

Markets saw Yukos shares take
a huge 31% drop on Friday

Once Russia's largest firm by market capitalisation, worth over $40 billion, Yukos is now worth just $5 billion. Renaissance Capital withdrew its "buy" rating on Yukos, saying the stock had now joined the distress investor class.

Yukos' other key assets include two producing units in Siberia and the Volga region as well as five refineries in Russia and one in Lithuania.

The auction will come one day ahead of a Yukos shareholders' meeting to consider re-organisation, bankruptcy or liquidation on 20 December.

Bidders must place a huge returnable deposit of $1.73 billion in a move seen to prevent the current owners of Russia's Number1 oil exporter trying to hamper the auction by bidding up the price without intending to buy.

"Nobody is going to put down $1.7 billion of deposit unless they get sovereign guarantees. And nobody is going to bid for Yugansk unless they get a Kremlin agreement that they are not going to hit Yugansk with further taxes," said Martin Taylor hedge fund manager at London-based Thames River.