Government frets over Mazeikiu, Yukos

  • 2004-12-22
  • From wire reports
VILNIUS - Lithuania's government has no intentions to acquire a majority holding in Mazeikiu Nafta, as such a move would not secure the efficiency of the company's business, Prime Minister Algirdas Brazauskas said at a Dec. 20 government meeting that discussed the oil company's future.

The government has been following the situation with Yukos, the majority owner of Mazeikiu Nafta, particularly after the auction of Yuganksneftegaz, Yukos' main oil production unit, on Dec. 19. An unknown company, the Baikal Finance Group, bid $9.37 billion for the production unit. Russia media reported that the BFG didn't even have an office at the address shown in the bid application, though it is believed to be a front company for Gazprom.

The sale of one of the country's biggest oil assets to an unknown shell firm - for only about one-third of Yukos' total tax debt to the Russian government - has many Lithuanian leaders worried that the sale of Yukos' assets is just beginning.

The oil refining and terminal complex is Lithuania's largest taxpayer. It contributes about 2 percent of GDP and accounts for some 17 percent of total exports.

The government stated in a press release that supplies of crude to Mazeikiu Nafta remain the core problem. Pursuant to agreements of 1999 that were taken over by Yukos from the U.S.-based Williams International, management of the company is to be regulated by the investor until 2014. This means the government's possibilities to influence management decisions at Mazeikiai would remain limited even if it acquired a majority holding.

The Economy Ministry has been charged with immediately responding to any changes on the board of Mazeikiu Nafta and with securing stable supplies of crude to the Mazeikiai refinery via its representatives on the company's board.

Last week Brazauskas confirmed that he had been notified about Economy Minister Viktor Uspaskich's idea to restore state control over Mazeikiu Nafta, and the prime minister did not dismiss a possibility that the plan might be implemented.

He added that in such a scenario the government would take over 10 percent in the oil complex and would boost its holding, currently at 40.6 percent, to over 50 percent.

Meanwhile, analysts have warned that the Lithuanian government may have to cut back on its investment and social programs if Mazeikiu Nafta runs into problems. Analysts also pointed out that the government has issued guarantees on 1 billion litas' (290 million euros) worth of loans to Mazeikiu Nafta. In a worse-case scenario, the government would have to find money to cover these loans should the company be unable to service them.

Should this occur, the state would be forced to scale down its investment or social programs. Worse, disruptions in crude supplies would hit Mazeikiu Nafta's profits, the country's largest taxpayer. "A disruption in oil supplies would affect budget revenue collection. The government would have to choose between increasing the tax burden and going back on its election promises of raising pensions and wages," said Andrius Nikitinas, an economist.