Vilnius offers share in oil asset to Russians

May 24, 2001
Rokas M. Tracevskis

"The government would approve the acquisition by LUKoil of 33 percent of shares in Mazeikiu Nafta through a new share issue. But we should still consider at what price and under what terms," said Gentvilas.

Lithuania will not be able to grant LUKoil operational control at Mazeikiu Nafta since this has already been given to the U.S. oil company Williams International, according to an agreement with Williams in October 1999, when it acquired 33 percent of the shares in the Lithuanian energy asset.

The Lithuanian government holds 59 percent of shares in the oil company, with the rest owned by small investors. Williams has the right to increase its amount of shares to up to 49.5 percent within the five years following 1999.

Storozhev told reporters after the meeting that LUKoil would seriously consider the Lithuanian government's proposals. He acknowledged that, with operational control remaining in American hands, the situation at Mazeikiu Nafta would not change even if LUKoil acquired an equity stake.

"In our opinion, it was an illogical step to hand over the management to the Americans and suffer the financial losses Mazeikiu Nafta has seen since then. If the situation changes, we will be ready to consider participation in Mazeikiu Nafta's management. LUKoil's strategy has been clear for a long time, that is to participate in the oil business from the oil well to the filling stations," Storozhev said.

He did not say if LUKoil agreed with the Lithuanian government's proposition or not. He just said that the proposal was a step in the right direction and that LUKoil would prefer to have operational control.

Ivan Paleicik, head of LUKoil Baltija, a subsidiary of LUKoil, was more optimistic. He said that LUKoil could guarantee a steady supply of crude if the deal for 33 percent of Mazeikiu Nafta is signed.

Gentvilas said LUKoil could acquire a shareholding in the energy asset through a new share issue, but gave no details. The government, LUKoil and Williams would then own a third of shares in the company each.

Williams Lietuva, a subsidiary of Williams International, was informed about the Lithuanian government's proposition to LUKoil in advance and the Americans agreed to compromise with the Russians in order to ensure a steady supply of oil to Mazeikiai.

Andrius Kubilius, a former Conservative prime minister and one of the main initiators of the 1999 deal with the Americans, said he supports the recent proposal of the Liberal/Social Liberal ruling coalition if it guarantees an uninterrupted supply of Russian crude.

LUKoil could have a proportionate representation on the Mazeikiu Nafta board should the Russian company acquire a third of the shares, Gentvilas said. Asked whether LUKoil had a chance to get more than 33 percent of the Lithuanian oil giant plus operational control, Gentvilas answered philosophically. "Anything can happen in this world. Nothing is eternal."

Lithuanians seem to have changed their minds about Williams, whose involvement with Mazeikiu Nafta caused enough public criticism to bring down one Lithuanian government in 1999, and are now guiding their mistrust at the Russians.

The Lithuanian media have expressed some skepticism about LUKoil's talent for managing their oil assets better than the Americans. In 1999, LUKoil bought 58 percent of Neftokhim, the biggest oil refinery in Bulgaria. It currently works only at 45 percent of its capacity and suffers tremendous financial losses, writes the Lietuvos Rytas daily.

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