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Talks with Yukos on refinery sale hit dead-end

Feb 15, 2006
Staff and wire reports

VILNIUS - Negotiations on the state's buy-out of the Mazeikiu Nafta oil refinery have hit a dead-end after two weeks as the all-but-defunct oil company Yukos is unwilling to make concessions, government officials said.

Prime Minister Algirdas Brazauskas said on Feb. 9 that talks between the two sides ended without a deal, as both the government and Yukos' lead negotiators called off a planned press conference the previous day.

What's more, the prime minister said the two sides did not agree when they would next meet.

Saulius Specius, an adviser to the prime minister, said that Lithuania was "insisting" that Yukos sell its 53.7 percent stake in Mazeikiu Nafta, the Baltics' only refinery, back to the government.

"It is very important for Lithuania to have such an investor in Mazeikiu Nafta that will guarantee non-stop oil supplies to the Mazeikiu refinery," Specius said. "However, this expectation seems to be of little interest to Yukos, which just wants to get good money for its stake in Mazeikiu Nafta," he said.

Yukos, which due to Russian prosecutors' campaign has been reduced to a shadow of its former self, appears to have accepted its fait accompli and is selling its final assets to the highest bidder. In this case, PKN Orlen, a downstream Polish company that has no production capabilities, has offered the highest bid 's reportedly $1.5 billion 's for the controlling stake in Mazeikiu Nafta.

The other potential investor is Kazakhstan's KazMunayGaz, which reportedly bid approximately $1.2 billion. Compared with PKN Orlen, however, the company owns vast crude oil reserves and has even proposed a joint production venture with Lithuania.

Lithuanian officials, however, fear a repeat of the Williams International affair, when a foreign investor came in and was forced to leave after it failed to guarantee deliveries of crude oil.

By buying the stake directly from Yukos, the government could choose the strategic investor that it thinks would best fit the necessary criteria.

Yukos is reportedly disappointed in the government's failure to comply with previous agreements, according to which Yukos has the right to buy an additional 21 percent in Mazeikiu Nafta.

Some government members admit that the Yukos case might go to court or arbitration, the Lietuvos Rytas daily reported on Feb. 10.

Despite the lack of clarity, the refinery itself, which accounts for some 10 percent of Lithuania's GDP, reported stellar financials for 2005.

Revenues soared 45.6 percent to 11.1 billion litas (3.2 billion euros), while consolidated net profit amounted to 929.9 million litas (269.5 million euros) for 2005, up 28.8 percent year-on-year.

Mazeikiu Nafta processed 9.25 million tons of crude oil in 2005, up 6.8 percent compared with 2004. Its monthly output reached a record high of 863,000 tons last September.

Oil exports via the Butinge terminal declined by 15.5 percent to 6.12 million tons, compared with 2004, though they were still 22.4 percent higher than planned.

Lawyers for Mazeikiu Nafta lodged an appeal against the decision of the Competition Council to impose a 32 million litas (9.2 million euro) fine for alleged abuses of the company's dominance on the retail fuel market.

"We have assessed each aspect of the decision of the Competition Council, and we believe that it is groundless in all respects. We hope that the court will go deeper into this question and adopt a ruling in our favor," Jaunius Gumbis, a lawyer with the lawyers office Lideika, Petrauskas, Valiunas Ir Partneriai told the Baltic News Service.
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