Intrigue around Mazeikiu Nafta sale increases as Kremlin puts squeeze on Kazakh bidder

  • 2005-11-23
  • By TBT staff
VILNIUS - Last week Transneft, Russia's state-owned oil pipeline monopoly, suddenly cancelled a 10-year deal with KazMunayGaz, Kazakhstan's state-owned oil and gas company that in recent weeks has intensely lobbied in Vilnius to become the next strategic investor in Mazeikiu Nafta.

The move has been interpreted as a means to elbow the Kazakh company out of the competition, which includes two Kremlin-friendly companies, Lukoil and TNK-BP, a British-Russian producer.

The Russian media reported that KazMunayGaz had submitted the highest bid 'sabout $1 billion 's for the 53.7 percent stake in Mazeikiu Nafta, which is currently owned by Yukos.

After hearing the news of Transneft's decision, Brazauskas said on Nov. 16 that it raised doubts about KazMunayGaz reliability. "Of course, we'll have to assess this situation. They (the Kazakhs) have told us they can guarantee supplies," he said.

The statement so worried Kazakh oil officials that Kazakh President Nursultan Nazarbayev called Prime Minister Algirdas Brazauskas on Nov. 21 to assure the Lithuanian government that KazMunayGaz was still interested in acquiring the stake in Mazeikiu Nafta and that it would be a reliable partner.

KazMunayGaz officials have said they would try to convince Russia to stick to the oil transit agreement, which was concluded in September and provided for the delivery of 12 million tons of Kazakh oil to Lithuania over several years.

Executives from the Kazakh companies have worked tirelessly to woo Lithuanian officials. Not only have they promised long-term delivery assurances, but they even said Lithuanian companies could join a joint venture in Kazakhstan to extract crude oil, something a Baltic government could only dream about.

But Transneft's sudden cancellation of the agreement is reminiscent of 1999, when Russian oil officials begrudged Lithuania for the latter's decision to sell Mazeikiu Nafta to Williams International, a U.S.-based oil firm. At the time, Lukoil had been instrumental in blocking crude deliveries to Lithuania to apply pressure on Vilnius. Lukoil also prevented a Kazakh oil company from supplying Mazeikiu with crude in 1999.

Mazeikiu Nafta, which includes a relatively young refinery and an oil export terminal, is the Baltics' only refinery. For Russian crude producers, it is an enormously attractive enterprise given the lack of refining capacity in the neighboring country. And for the Russian government, control over Mazeikiu Nafta seems to fit into the Kremlin's strategy of buying strategic assets in the former Soviet Union.

Meanwhile, Yukos has agreed to sit down to talks on the sale of its majority stake to the Lithuanian government. At the same time a company executive said that the list of potential buyers included four companies, which he declined to name.

Earlier Economy Minister Kestutis Dauksys had said that the four were TNK-BP, Poland's PKN Orlen, KazMunayGaz, and a consortium of Lukoil and U.S.-based ConocoPhillips.

But with KazakhMunayGaz's bid faltering, and even the Polish media openly doubting the chances for Orlen, it would appear the thrust of the battle has boiled down to TNK-BP and Lukoil-ConocoPhillips.

After meeting with Yukos' CFO on Nov. 19, Dauksys said, "Yukos has confirmed repeatedly that it is expecting the specific proposals from the Government, which it could consider and sell the shares directly to the state eventually."

He added, "The scenario of talks would be clarified after Nov. 24 decision of the court of Amsterdam concerning the seizure of Yukos' assets. The further course of talks will depend on that decision."

Lithuania would like to purchase the stake for approximately 3 billion litas (870 million euros) and then sell it, along with an additional 20 percent sake, to a strategic investor. The government has opened talks with TNK-BP, though it has said the door is still open to other investors.

Still, the entire scheme is muddied by the arrest of Yukos' interest, which is registered in the Netherlands, on the basis of claims put forward by Western and Russian creditors. A Dutch court has ruled that the refinery stake should be sold at maximum price to pay off the debts, while Yukos has petitioned to have the arrest removed, which would effectively allow it to sell.

Speaking Nov. 18, Dauksys, who is a member of the Labor Party, said, "One thing is if Yukos itself will be selling the shares, and another thing is if this will be done by the court. We'll have yet another situation if the court imposes restrictions on Yukos," he said.

ConocoPhillips' chairman James Mulva met with Brazauskas last week to assure Lithuania that, together with Lukoil, the company would ensure crude supplies to Mazeikiu and would invest several million dollars to upgrade the facility.

Brazauskas noted that some political parties were opposed to Lukoil's presence in Lithuania.