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Blaze at Mazeikiu Nafta threatens PKN Orlen deal

Oct 18, 2006
By Arturas Racas

Blaze at Mazeikiu Nafta threatens PKN Orlen deal
SMOKE SIGNAL: Last week's fire at the Mazeiku Nafta refinery has raised considerable suspicion.
VILNIUS - The Mazeikiu Nafta oil complex, which should have spouted gold for the Lithuanian government, may become a major headache after a fire broke out at the refinery on Oct. 12. The blaze not only destroyed equipment, but also threatened Lithuania's sale of 30.6 percent in Mazeikiu Nafta to Polish PKN Orlen, which was to bring 2.3 billion litas (666 million euros), into government coffers.

The transaction was scheduled for completion by March 2007, but immediately after the fire, the Polish company said it had delayed signing a finance agreement with banks for a "certain period."
The fire broke out at 2:32 p.m. on Oct. 12 in the refinery's 16-year-old fuel vacuum distillation unit. The blaze caused oil products to leak over 800 square meters, exacerbating the fire.

Workers at a nearby timber company said the flames reached a height of 150-meters, and that the area was covered in smoke. They also said that the blaze could be seen from several kilometers away.
The fire was extinguished later that evening, but firefighters remained on the scene throughout the night and continued to douse flash points the next day.
Speaking at a press conference on Oct. 13, Kestutis Dauksys, Lithuania's former economy minister, raised suspicion over the incident and called for an investigation.

"The sequence of events shows that the fire could not have been an accident. The month after Mazeikiu Nafta was sold to PKN Orlen, the supply of oil was terminated. The fire started at the same time the Polish company provided the European Commission documents to get permission for the deal," he said.
"These are serious enough arguments to raise doubts that the fire was caused by technical reasons alone. There is no need to overreact, but it is enough to increase pressure," the former economy minister added.
But Prime Minister Gediminas Kirkilas was cautious to make hasty conclusions.

"There are no indications of malicious actions or detonation, according to experts," Kirkilas told The Baltic Times after he visited Mazeikiu Nafta on Oct. 13. "Of course, the investigation will continue, but it is very likely that the fire started because of pure technical reasons."
He also said that a special government commission, chaired by Interior Minister Rimantas Sukys, would submit the final conclusions about the fire.
"The commission will start working today [Oct. 13], it will include experts from all parties concerned, so let's wait a little," Kirkilas said.

Sukys also tried to cool down emotion and speculation.
"We did not hear the final information today, but we were assured that the accident would not affect the refinery's mass production products - gasoline and diesel fuel," he said. "Effects on the production of liquid gas, bitumen and fuel with biological additives have yet to be assessed."

However, it seems that PKN Orlen has decided to put the Mazeikiu deal on hold.
Igor Chalupec, PKN Orlen's chairman of the board, told Kirkilas over the phone that the Polish company had delayed an agreement with the banks scheduled to finance the Mazeikiu Nafta deal.
"The delay is related to the necessity to investigate the situation at the refinery," PKN Orlen said in a statement.
But the company also said that PKN Orlen would conduct a full-scale investigation into "the effects of the accident on Mazeikiu Nafta's operations and financial status."

On Oct. 17, PKN Orlen's management postponed a ceremony to mark the completion of the deal, which was scheduled for mid-December, until next January, the Lietuvos Rytas daily reported.
The European Commission may still ask PKN Orlen, Mazeikiu Nafta and state institutions to provide more detailed information on the fire's possible impact on the Baltic and EU fuel market. Therefore, due to the fire, the transaction is unlikely to be closed this year.

The Lithuanian media reported that PKN Orlen would try to re-negotiate the price for Mazeikiu Nafta shares. However, both PKN Orlen and the Lithuanian government have denied the reports.
Saulius Specius, adviser to the Lithuanian prime minister, said the government's agreement with PKN Orlen did not allow for a price renegotiation.
"The price is not linked with the market's share value, nor with Mazeikiu Nafta's stock results," Specius told the Baltic News Service.

But he noted that PKN Orlen also had an agreement to buy a 53.7 percent stake in Mazeikiu Nafta from ailing Russian company Yukos.
If the deal with Yukos fails, the purchase of shares from the government would also be impossible.
In the end, it may be Mazeikiu Nafta's insurance policy that sees the PKN Orlen deal go through.
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