Mazeikiu Nafta: And then there were three

  • 2005-09-28
  • Staff and wire reports
VILNIUS - The list of likely buyers of a controlling stake in Mazeikiu Nafta appeared to narrow to three last week, as Prime Minister Algirdas Brazauskas placed the onus of responsibility for any deal beneficial to the state on the shoulders of Parliament.

Though as many as six potential investors had expressed interest in the oil refinery, only three 's Lukoil and ConocoPhillips, TNK-BP and Baltic Holding 's appeared to have a chance.

Vagit Alekperov, CEO of Lukoil, Russia's largest oil company, was in Vilnius on Sept. 27 to continue negotiations with government leaders. In an interview with the Lietuvos Rytas daily, he confirmed that as early as March, Lukoil began talks with Yukos on purchasing the latter's majority stake in Mazeikiu Nafta.

The government, which owns 40 percent of the oil refinery and export terminal complex, is hoping to acquire a windfall in cash revenue from the deal. But in order to pull it off, the government will first need to borrow some 3 billion litas (860 million euros) to pay for the majority stake owned by a Dutch-based subsidiary of Yukos, the maligned Russian oil company.

Officials from ConocoPhillips, a U.S. oil company, were in Vilnius earlier this month, while TNK-BP, a Russian-British consortium, have also visited the Lithuanian capital.

The third potential buyer, Baltic Holding, is based in Austria and is the most enigmatic of the trio. Originally it was connected with Gazprom, but Brazauskas suggested Russia's gas monopoly had backed out. "As far as we know, they have split up," he told journalists on Sept. 26.

Still, Baltic Holding vowed to invest 4 billion litas (1.16 billion euros) into Mazeikiu Nafta if it acquired a majority stake, Brazauskas said. What's more, it promised to supply Mazeikiu Nafta with 12 million tons of crude per year, Brazauskas added.

Though it is unclear what production assets Baltic Holding, as opposed to Lukoil and TNK, possesses, given the history behind the Austrian company it is likely that the oil would come from Russia's Sibneft.

Last week Gazprom, which helped create Baltic Holding, borrowed a record $12 billion to finance the takeover of Sibneft, whose controlling owner, billionaire oligarch and Chelsea-football club owner Roman Abramovich, has decided to sell.

Although Sibneft owns one of Russia's most modern refineries in the Siberian town of Omsk, the company is likely keen on increasing its refining capacities in Eastern Europe.

Speaking on Sept. 22, Brazauskas stressed that the government was after a three-party agreement with Yukos and the new strategic investor. The agreement would have to ensure that Lithuanian authorities maintained the current level of control at Mazeikiu Nafta, the country's largest taxpayer, and that crude oil supplies would be guaranteed.

"These conditions include guaranteeing crude supplies to the company, ensuring jobs for more than 3,000 employees, and paying taxes and interest on loans," Brazauskas told the Ziniu Radijas radio station.

The government plans to sell about 20 percent of outstanding shares at the same price that Yukos will sell its 53.7 percent stake, leaving state coffers with a hefty profit.

"Lithuania will have extra hundreds of millions of litas," he said.

However, the government will first need to borrow heavily. The Cabinet has submitted a bill to Parliament allowing it to borrow 3 billion litas and then buy Yukos' stake. Brazauskas stressed that Lithuania would lose out if lawmakers refused to authorize the loan amount.

"In this case, Lithuania would lose a billion, perhaps even more than one billion litas. Now we have a good chance. I hope that Yukos' shares will be sold. If we sell our shares simultaneously, we may offset our losses that were sustained back in 1999," he said.

To complicate matters, Russia's Justice Ministry has asked the Lithuanian government to refrain from allowing the Yukos-owned stake from changing hands at a time when the company has billions of euros in tax debts to the Russian government.

Speaking to journalists in Vilnius, Lukoil's Alekperov said, "I have kept no secrets and have been saying, all these 15 years, that there is no more logical technological solution than to connect Lukoil's production resources in Western Siberia and Kaliningrad with the Mazeikiu oil refinery, having a network in Poland, Kaliningrad, Lithuania, Latvia and Estonia, and that there is no better partner for Mazeikiu Nafta than Lukoil," he said.

Lukoil, he stressed, has invested over $100 million in Lithuania over the 15 years.

"We are strong enough for such a project as Mazeikiu Nafta and supplying it with crude. Our partners at ConocoPhillips have confirmed that they will join us in this project. I believe that today such an alliance, Lukoil and ConocoPhillips, would be the most comfortable for Lithuanian consumers because being able to supply crude would allow us to make the peaks in oil prices more predictable and more comfortable," said Alekperov.

At the same time, the CEO recognized the political aspects of any possible deal. In the interview with Lietuvos Rytas, Alekperov said that the ultimate decision on who obtains the refinery would be more political than economic. "Could we call it the political rationale? Perhaps yes, if political considerations enable [us] to preserve national political and economic stability," he said, adding that Lukoil would pose no threat to Lithuania's national security.

Fearing Russian control of its prized refinery, Lithuanian government officials chose to sell to Williams International, a U.S.-based company, back in 1999. At the time Lukoil, who had bid for the asset, bristled at being rejected, and eventually the agreement with Williams International collapsed, setting the stage for Yukos to take control of the refinery.