VILNIUS - The debate on whether Lithuania should borrow more than a billion euros to buy back Mazeikiu Nafta intensified this past week, while President Valdas Adamkus chided the government for displaying favoritism in the gradual lead-up to a sale of the refinery.
Rita Grumadaite, a presidential spokesperson, said that in the president's opinion, the draft law on purchasing Mazeikiu Nafta shares from Russia's Yukos, currently under debate in Parliament, incurred a great financial burden on the state and the people of Lithuania, and therefore it was extremely important to adhere to the principles of transparency throughout the sale process.
"The president finds it unacceptable that a buyer for the country's strategic holding has been prematurely chosen. The president hopes the government will take account of its estimations as presented in the report on national security threats," Grumadaite said.
According to media reports, Prime Minister Algirdas Brazauskas said that Russia's Lukoil was the most suitable investor for Mazeikiu Nafta during the government's meeting on Sept. 27.
One day earlier, the PM was quoted as saying that the most plausible candidates for the refinery company - which accounts for approximately 10 percent of Lithuania's GDP - were Lukoil, TNK BP and Austria's Baltic Holding.
Top Lukoil officials were in Vilnius last week to demonstrate why the company was best suited to be Mazeikiu Nafta's strategic investor. The company has extensive retail operations in the Baltics and is currently extracting crude in the Baltic Sea not far from the Curonian Spit, a UNESCO World Heritage site and the charm of Lithuania's summer tourism industry.
At present, Yukos controls 53.7 percent of Mazeikiu Nafta stock through a Netherlands-based subsidiary. The state possesses a 40.6 percent interest. In accordance with the proposed legislation, the government would borrow almost a billion euros to buy Yukos' stake and then turn around and sell it, along with another 20 percent, to a strategic investor.
The deal could potentially bring a windfall to state coffers. The current market value of Mazeikiu Nafta is some 4.8 billion litas (1.4 billion euros).
The draft law on purchasing the shares was put to the floor in Parliament on Sept. 29, but the opposition postponed deliberation since MPs wanted to hear the prime minister's arguments again.
Representatives of the Homeland Union, a right-wing party, reminded the government that in its report on national security issued in the spring, it unambiguously stated that the Kremlin-loyal Lukoil's presence was a threat to national security.
"We are now looking for a third owner for Mazeikiu Nafta," Brazauskas said. "I believe that the third time will be lucky and we'll find an owner who will fully comply with the national security criteria we set."
The prime minister downplayed the refinery's importance for national security. "In 1999 the Seimas [Lithuania's parliament] agreed to give control of the company to a private, foreign company. It was then the right time to discuss these (national security) issues," he said.
Brazauskas suggested that parliamentarians decide for themselves if Lukoil, Russia's largest oil producer, posed any threat to Lithuania's national security. "If the government adopted a passive stance now, Yukos would sell a buyer of its choice not only its existing shareholding in Mazeikiu Nafta but also an option to buy more shares in the company," Economy Minister Kestutis Dauksys warned.
Meanwhile, analysts wrote that the government would have to borrow abroad in order to finance the deal. Local banks would not be able to come up with the 3 billion litas needed to buy Yukos' majority stake.
Vadim Titarenko, advisor to the president of Nord/LB Lietuva, said individual banks would "certainly not" be capable of financing the transaction.
The Bank of Lithuania stated that local banks could loan up to 8.5 billion litas without breaching the capital adequacy requirement.
The amendments envisage that laws normally applied in such cases, for example the law on privatization of state and municipal assets and the law on securities market, would not apply to transactions on Mazeikiu Nafta's shares. This would allow the government to negotiate the sale of shares with a single investor without inviting bids from other potential buyers, as well as avoid additional procedures on the stock exchange.
The bill also envisages that Lithuania retain at least 10 percent of its shares in Mazeikiu Nafta, which consists of a refinery, an oil export terminal and a transportation and retail sales complex.