New supply glitches beset Mazeikiu refinery

  • 2005-04-06
  • Staff and wire reports
VILNIUS - Oil deliveries to Mazeikiu Nafta's refinery ceased yet again last week, lasting several days even though the plant continued to operate using reserve supplies. Deliveries suddenly ceased on April 2, and officials at the refinery said they were working at full capacity by the morning of April 5.

The new supply problems 's the second in less than two months 's baffled both refinery operators and government officials, particularly since the refiner was in possession of delivery confirmation telegrams from Transneft, Russia's pipeline distributor.

Nerijus Eidukevicius, deputy economy minister and chairman of Mazeikiu Nafta's board, said that crude deliveries had stopped due to technical obstacles involving LatRosTrans, since it apparently did not have a valid contract with a forwarding company. LatRosTrans owns and operates the pipeline in Latvia though which crude flows to the Lithuanian refinery.

Yukos, the Russian oil producer that is being dismantled by the government and that used to supply the bulk of Mazeikiu's crude, was barred from making any deliveries to the Lithuanian refinery in the second quarter, even though it owns a majority stake.

Other Russian producers have lined up to take Yukos' place, and on April 2 Lithuanian Economy Ministry Viktor Uspaskich, who is leading the government's efforts to stabilize the situation at the refinery, said that Lukoil and a few other suppliers would ensure supplies for the second quarter.

The minister said that pursuant to the agreement with Lukoil, Mazeikiu Nafta would receive 600,000 tons of crude for the April to June period.

Eidukevicius confirmed that Lukoil was one of six to eight suppliers with whom agreement have been signed for the quarter.

In total, Russian oil producers have been allotted a combined 1.8 million tons of crude to Mazeikiu for the three months. The refinery has an approximately annual capacity of 12 million tons, or 3 million tons per quarter.

In 2004, the refinery processed 8.6 million tons of crude, a 21 percent rise year-on-year. In the first two months of this year, the volume of refined oil increased 4.6 percent to 1.4 million tons.

The Lithuanian government fears that Yukos' tax problems at home may continue to have negative effects on refinery operations and in recent weeks has been negotiating with Yukos to retake control of Mazeikiu Nafta. In February the Russian firm, which still has some $25 billion in outstanding taxes in Russia, agreed to a deal that would allow Lithuania to take over the company's option to buy a 9.72 percent stake in Mazeikiu Nafta via a new share offering. This would give the state a majority stake in the oil refining and transportation complex.

Meanwhile, a local daily has reported that Lukoil, one of the most likely contenders to take control of Mazekiu Nafta, the largest taxpayer in Lithuania, might force the Lithuanian company to pull out of the Ukrainian market.

The business daily Verslo Zinios reported this week that Mazeikiu Nafta, which started operating in Ukraine 10 years ago, had a breakthrough year in 2004, raising its gasoline and diesel fuel sales in Ukraine by 73 percent to almost 150,000 tons. It currently possesses 15 retail fuel chains and is looking to further increase its sales in that market.

Ukraine's six crude refineries cannot produce high-quality fuel, leaving Mazeikiu Nafta with about 90 percent of that country's high quality gasoline imports, a market segment that Lukoil's refineries are interested in.