A three-way battle over oil interests?

  • 2000-03-16
  • By Peter J. Mladineo
VILNIUS - Lithuania is not only vying with ultra-competitive oil Russian interests, but it seems Latvian oil interests as well. Last week two events drilled that point home: On Feb. 29, the Latvian daily Jauna Avize revealed that the Latvian Green Party, a staunch opponent of the Butinge Oil Terminal's opening in autumn,1999, did indeed receive funds by officials within the Ventspils Nafta organization, a claim initially denied by the Latvian Greens. Also, reports are now surfacing in the Lithuanian press about the planned construction of a new small oil refinery in Latvia that would compete with Lithuania's Mazeikiu Nafta.

Unconfirmed reports claim that oil officials in both Russia and Latvia are discussing the construction of a $200 million refinery that would process 2 million tons of oil a year in Latvia's Jelgava region. It would be funded by unnamed members of the Union of Russian Oil and Gas Industrialists.

That project, reports say, would enable the Baltic states and the Kaliningrad region to receive cheaper oil products than those sold by the Williams-controlled Lithuanian oil concern Mazeikiu Nafta. More importantly, the refinery would have guaranteed sources of Russian supplies of crude oil, a goal that has so far eluded Williams and Mazeikiu Nafta, which has recorded huge revenue losses thus far because of operational suspensions resulting from inadequate supplies of crude.

Union representatives in the Russian oil and natural gas industry were quoted as saying that Latvia would make a better partner than Lithuania for its ability to reconcile Russian and Western interests, unlike Lithuania. And while most oil officials in Lithuania are describing this story as rumors Yuri Ognev, the union's adviser in Latvia, told reporters that preliminary projections for the refinery are so far advanced that there is no possibility to turn back. Trying to dispel claims that this plan is motivated out of a desire to put pressure on the Lithuanian oil sector to give Russian oil interests a large share in the Mazeikiu Nafta, Ognev went on to say that the refinery would be built even if Williams left Lithuania.

While the identity of the entity that would fund that project is so far unknown, one thing is certain: It's not Russian Lukoil. "The problem of Lukoil is this: its branches that work abroad are too economically independent and its central headquarters is very close to the Russian government," Ognev was quoted as saying.

So far, these reports have not caused anything close to unease in the Lithuanian oil sector.

"An official reaction is not going to follow that statement because we haven't been informed of any such project," Arturas Baublys, a spokesman for the Ministry of Economy, said. "This is probably, again, more of a politicized decision - if they will follow it indeed. It might have an influence on some other Latvian political issues, but not on a Baltic scale."

It seems that the Baltic region abounds in plans - mostly unrealized - about building small refineries. "The Latvian plans are not all that original. Businessmen in Estonia and Kaliningrad talked about building a refinery in the past and even some Lithuanian businessmen thought about building a refinery in Palanga," said Alan Henderson, Mazeikiu Nafta's communications director.

Henderson also questions the feasibility of the plan to build such a small refinery.

"You need a very sound business plan if you're going to go for a small refinery," he said. The last small refinery went up in Germany, where "instead of building three small refineries, they went for economies of scale and built one big refinery, capable of refining 10 million tons a year. The cost of that was several billion deutschmarks," he added.

In contrast, Mazeikiu Nafta would dwarf this proposed refinery in volume and investment.

"Over the next four or five years we're going to be investing a minimum of $550 million. We're looking to process about six million tons this year, and this could be doubled by the time our work's all complete," Henderson said.

However, what irks the Lithuanian oil sector more than a Latvian mini-refinery is a plan by Russian oil interests to build a pipeline that would bypass Lithuania. One such pipeline would pass through Belarus en-route, possibly, to an export terminal in the Kaliningrad region - construction of which could begin late this year or in 2001.

"We are looking at Russia's project very carefully," said Baublys. "Certainly if they will decide to bypass Lithuania, this might affect Lithuania quite badly. Not exactly because of the loss of transit, but it might also reflect Russia's crude oil export policy. They might again issue restrictions on export via the Baltics, and in that concern this might affect both Latvia and Lithuania."

In related oil news, discussions for a long-term supply deal have been continuing between Williams International, the operator of Mazeikiu Nafta and Butinge, and the Russian oil company Yukos. After a brief visit by Williams President John Bumgarner, the two sides have decided to continue negotiations for a long-term deal. Last year, Yukos was the main crude supplier to the Lithuanian oil concern.

Another possible solution to Lithuania's crude oil supply problem would be the import of oil from Kazakhstan. Recently, said Baublys, Lithuania's ambassador in Kazakhstan reported that an eventual deal could be struck between Kazakhstan suppliers, who could export between two and three million tons of crude oil to Lithuania.

"On a state level we haven't started any negotiations yet," said Baublys. "We have an interest to receive their oil and they have an interest to export their oil. But the focus of the problem probably remains the transit corridor through Russia."

That the Latvian Greens were funded by Ventspils will not be a credibility builder for the Greens and the Latvian oil sector. Remember the Greens' protest last year in which several members of the organization chained themselves to the newly opened Butinge terminal and prevented it from functioning for a few hours.

While they were ostensibly protesting the terminal's environmental hazards, their leader Valdis Felsbergs fervently denied there were any financial ties between Ventspils and the Greens.

"We are not connected to Ventspils other than being in the same country," Felsbergs said. "We are not paid by Ventspils for our actions and I can say that these actions are quite cheap, they don't cost too much. We don't need money from Ventspils and other possibly polluting industries of Latvia."

The Lithuanian government, which at that time fueled speculation that the Greens were acting in the interests of Ventspils, has so far declined to comment.