Lithuanian ministers may start process of nationalizing Mazeikiu Nafta next week

  • 2006-05-24
  • Staff and wire reports

SLIPPERY SLOPE: Intransigence on the part of Russia may prod Lithuania to nationalize the Mazeikiu refinery, the country's most strategic asset.

VILNIUS - Fed up with legal stonewalling and political posturing, Lithuania's government announced May 22 that it would submit a bill on nationalizing Mazeikiu Nafta, the country's largest corporation and the only oil refinery in the Baltics. If approved, the unprecedented move would ostensibly end a slew of legal battles and intense competition surrounding the enterprise, while at the same time possibly opening a Pandora's box of litigation against the Lithuanian government.

At the same time Prime Minister Algirdas Brazauskas announced on May 23 that Yukos was prepared to sell its stake to Poland's PKN Orlen, and that the two sides have prepared an agreement to be signed. It was unclear how the news would affect the threat to nationalize the enterprise. Brazauskas said the Cabinet could submit a bill on nationalization as early as next week. He also cited Economy Minister Kestutis Dauksys, who was on a visit to Moscow this week, as saying that Russia intended to pursue its line and seek to take over Mazeikiu Nafta.

"We will have no other option in that case," Brazauskas noted.
President Valdas Adamkus said nationalization would only be possible as "an extreme measure."
"That is an extreme measure, if Lithuania is left with no better option and that is the only way, I believe that Lithuania then could take this option to defend its interests," Adamkus told journalists on May 23. He added that nationalization was not "the best way out."
"We must use every possibility in protecting our affairs," the president said.
However, parliamentary opposition to the proposal would be stiff. Even Juozas Olekas, leader of the Social Democratic faction, said he was opposed to the idea. Sources at the government noted that the proposal to nationalize the oil complex might not garner the required support at the Cabinet or Parliament.

On May 22, Dauksys met with Russia's Deputy Prime Minister Dmitry Medvedev who said that Russia was first and foremost seeking to meet the interests of its creditors, which include the state-owned Rosneft. He ensured that selling the Lithuanian complex would fall in line with market mechanisms. Dauksys reminded Medvedev, who is believed to be a possible successor to Vladimir Putin, that Mazeikiu Nafta was a strategic corporation for Lithuania and so the identity of its upcoming manager was of prime importance. Meanwhile, a New York court earlier imposed an injunction on any moves of Yukos' management to sell its 53.7 percent stake in Mazeikiu Nafta until May 25. Eduard Rebgun, the Moscow court-appointed temporary administrator of the embattled Russian oil company, had convinced the U.S. court that he would favor the sale of Mazeikiu Nafta, which is sought by Poland's PKN Orlen and Kazakh KazMunayGaz, although he needed several more days to study all aspects of the transaction.
Yukos said in its documents submitted to the U.S. court that the company had been approached with an offer to buy the controlling interest in Mazeikiu Nafta for the amount over $1.4 billion.

Yukos warned that the offer would expire on May 26 and disclosed its concerns that Lithuania might nationalize the oil complex should the transaction fall through eventually. Rebgun refused to name the buyer, though it would appear he was indicating PKN Orlen. But for him the name of the buyer was less important than for the Lithuanians. "I have to understand who will get the money for the shares in Mazeikiu Nafta. If only two or three creditors stand to benefit from that transaction, I will dispute it. My key objective is to have all creditors regain their money," the administrator said.

The list of Yukos' creditors available to Rebgun shows 230 names, of which 50 have already lodged claims. Saulius Specius, adviser to Brazauskas, confirmed that nationalization remained an option. "If we see that there is a threat to national security or to the continuation of the company's operations, we will seriously consider this option," he said. The government, which currently owns 40.6 percent of Mazeikiu Nafta, wants to repurchase the 53.7 percent stake and cancel its agreements with the Russian company signed in 2002, including two Yukos-held options to buy 21.2 percent in the refinery at a price well below the shares' current market price. The government would then sell the stake, along with another 20 percent, to a strategic investor of its choice.

In Poland, a report surfaced that PKN Orlen, the country's largest oil concern, may sign an agreement on the purchase of Mazeikiu Nafta with the Lithuanian government by the end of May. The Polish daily Rzeczpospolita, citing unofficial sources, reported that Igor Chalupec, PKN Orlen chairman, refused to confirm that information. PKN Orlen has reportedly offered $2.5 billion for a 94 percent stake in Mazeikiu Nafta. Moreover, the Polish concern pledges to invest an additional $1 billion over several years' time.