The Moscow Bankruptcy Court may uphold a July 25 vote by creditors including OAO Rosneft and Russian tax authorities to liquidate the company. Yukos, valued at $43 billion less than three years ago, is today just 3.5 percent the size, with its former chief executive officer imprisoned in Siberia. Putin jailed Mikhail Khodorkovsky, a one-time billionaire, on charges of fraud, and used $30 billion in tax claims as the basis for seizing his company's main production unit and selling it to Rosneft. Yukos's remaining oil assets may now be snapped up by Rosneft and OAO Gazprom, ending a process that has given the government command over 60 percent of Russia's energy industry. ``Khodorkovsky directly challenged the Kremlin and the Kremlin decided to crush him,'' said Sergei Markov, director of the Center for Political Studies in Moscow. ``Putin wants government control over the oil and gas industry because it's the nation's most important sector. The process of destroying Yukos has played a huge role in achieving that.'' Yukos creditors recommended selling its assets after Eduard Rebgun, the court-appointed bankruptcy manager, said the company couldn't be salvaged. Rosneft and the tax authorities rejected a management recovery plan that valued Yukos's assets at about $38 billion, compared with Rebgun's valuation of $17.7 billion. CEO Quits A week before the creditors meeting, Steven Theede, 54, who became Yukos CEO in June 2004, resigned after being told Rebgun would recommend liquidation. Simon Kukes was CEO after Khodorkovsky's arrest in October 2003 until Theede took over. Khodorkovsky, 43, has said the charges against him were politically motivated because he opposed Putin's plans for the oil industry, a charge the government denies. Claire Davidson, a Yukos spokeswoman in London, declined to comment. Putin, 53 and a former KGB colonel, did a doctoral dissertation in the 1990s at a St. Petersburg university, where he emphasized the importance of Russia's hydrocarbons in restoring the country's influence in the world. In the 2 1/2 years since the arrest of Khodorkovsky, who is serving an eight-year prison term in a Siberian labor camp, the Russian government has turned Rosneft and Gazprom into challengers to BP Plc and Royal Dutch Shell Plc. The state- controlled companies have acquired one-time Yukos assets, allowing them to more than triple oil output to more than 1 million barrels a day. Yugansk Boost Rosneft, which sold shares to the public for the first time in July, tripled output in 2005 after buying OAO Yuganskneftegaz following a state-sponsored auction to recover part of Yukos's tax bill. Yugansk pumps more than a 10th of Russia's oil. Putin has justified the Yugansk auction as a remedy for claiming a portion of the taxes owed by Yukos. ``If the government takes back these assets, I think that is fair,'' Putin said last month in an interview with German television ZDF. Rosneft may overtake OAO Lukoil and BP's Russian unit, OAO TNK-BP, to become Russia's biggest oil producer if it gains more of Yukos's remaining assets through bankruptcy proceedings. ``The assets will go to state-owned companies,'' said Peter Halloran, who manages about $300 million in Russian equities at Pharos Financial Group in Moscow. Held Hostage Yukos's remaining units include oil fields able to pump 500,000 barrels a day of crude and Russia's biggest refinery by capacity. The jailing of Khodorkovsky and dismantling of Yukos riled investors, who had welcomed Putin during the first three years of his presidency as he slashed taxes and reduced the state's role in the electricity industry. ``International investors became hostages of this situation,'' Ivan Mazalov, who helps manage about $2.5 billion at Prosperity Capital Management, said in an interview from Moscow. Prosperity holds less than 1 percent of Yukos. ``The state took assets from investors without hesitation.'' Rosneft is ``actively preparing'' to buy Tomskneft, Interfax reported July 27, citing the speaker of the Tomsk regional parliament, Boris Maltsev. He spoke after meeting with Rosneft CEO Sergei Bogdanchikov, 48, the news agency reported. Vladimir Voyevoda, a Rosneft spokesman, said the company doesn't ``have such plans'' at present. Gazprom Neft Yukos still owns refineries including OAO Angarsk, which has a capacity of 410,000 barrels a day. It also has a group of plants in Samara with a total capacity of 300,000 barrels a day. Its largest assets are a 20 percent stake in OAO Gazprom Neft, valued at about $4 billion, and a 23 percent non-voting stake in Yugansk, at $7.5 billion. Gazprom last month offered to buy the Gazprom Neft stake from Yukos. Yukos said it won't sell any assets until the court rules on its possible bankruptcy. ``Putin saw the state of the Russian oil industry as a mess that had to be sorted out,'' said Pavel Erochkine, a Russian energy analyst at the Centre for Global Studies in London. ``Now that the industry is under greater government control, the new priority is to change the tax regime to allow companies to accumulate cash for investment.'' PIN/BLOOMBERG