PM: Cabinet likely to choose TNK-BP

  • 2005-10-12
  • Staff and wire reports
VILNIUS - The government last week narrowed down the list of potential investors for the Mazeikiu oil refinery to two Russia-based producers - Lukoil and TNK-BP - and then Prime Minister Algirdas Brazauskas said on Oct. 11 that the most likely buyer would be TNK-BP, the Russian-British venture.

The ruling coalition's political council was scheduled to meet on Oct. 12 to make a final decision. "We are heading toward starting negotiations with TNK-BP because in many ways it meets the requirements that, in our opinion, a company should meet," Brazauskas told Lithuanian Radio.

Reports are circulating that both companies are willing to pay some $1 billion for an approximate 70 percent stake in Mazeikiu Nafta, an oil refinery and export terminal complex that accounts for some 10 percent of Lithuania's GDP.

TNK-BP is a Russian-British joint venture, while Lukoil, Russia's largest crude producer, said it might team up with its international partner, the U.S.-based ConocoPhillips, in its bid for the Lithuanian refinery.

Yukos, the moribund Russian oil company, owns a 53.7 percent interest in Mazeikiu Nafta through a Dutch subsidiary. The company, which still has a multi-billion dollar tax debt on its hands, has been forbidden by Russian authorities to export crude to its subsidiary Lithuanian refinery.

To sweeten the deal, the Lithuanian government is prepared to part with about half its interest, or some 20 percent of Mazeikiu Nafta shares, to any strategic investor. It is likely to keep only a 10 percent stake.

The deal is enormously important for the Baltic state, which needs a stable supply of crude to keep the refinery, its largest taxpayer, running. It also represents an opportunity to strike a windfall of some 300 million euros for state coffers.

Nerijus Eidukevicius, deputy minister of economy, said last week that the funds would be transferred to the Privatization Fund and used for deposit and real estate restitution schemes.

Still, to make the deal work, the government will first have to borrow an extraordinary amount of cash from foreign lenders to buy Yukos' stake. In all, the state wants to borrow some 3 billion litas (850 million euros), a sum far beyond its credit limit.

Lukas Tursa, deputy director of the ministry of finance's state treasury department, told the members of Parliament's budget and finance committee that the state's intentions to borrow the money would affect neither the introduction of the euro nor the main fiscal parameters.

The loan would only influence borrowing indexes, said Jaunius Simonavicius, deputy finance minister. "If we take the loan, Lithuania's debt ratio would rise to 23 percent of gross domestic product (GDP), from its current 18 percent," he told committee members.

Tursa said that the government would likely borrow on foreign markets. "We may also borrow on the domestic market; however, we might not be satisfied with interest rates.'

The interest levied by foreign banks might range at 2.3-2.5 percent, which would burden the national budget by an additional 5 - 8 million litas per month.

Economy Minister Kestutis Dauksys said on Oct. 5 that the loan would not threaten the country's plans to adopt the euro. He said the government and Eurostat, the European Union's statistics agency, unofficially agreed that the said loan would not be factored in while estimating Lithuania's fiscal deficit, one of the Maastricht criteria.

Lithuania wants to introduce the euro in 2007 (see story on this page).

Indeed, on Oct. 10 EU Budget Commissioner Dalia Grybauskaite said that the government's plans to borrow would have no impact on the country's fiscal deficit if the loan was repaid the same year.

"If the borrowing takes place in the same year as the sale, it will not affect the deficit," Grybauskaite, who was in Lithuania this week, was quoted as saying.

The commissioner said the European Commission did not intend to respond to the transaction unless it had an adverse effect on the fiscal deficit. "It is an internal matter of the country - the European Commission could only intervene if it had an effect on the fiscal deficit," she said.

Eidukevicius confirmed that the government would try to buy Yukos' stake in Mazeikiu Nafta before the Russian company sells the asset on its own behalf. This, he said, would require some two-and-a-half months if the process begins immediately.

If the government doesn't strike a deal with Yukos, "we could not negotiate the price - we would have to buy for the price negotiated by Yukos and the prospective buyer. If we launch the negotiations before, Yukos would win some time," Eidukevicius said.

He added that Yukos had authorized Lehman Brothers to find a buyer for its stake in Mazeikiu Nafta.

Meanwhile, Lukoil said it would change Mazeikiu Nafta's pricing policy if the company takes over the refinery. "If Mazeikiu Nafta becomes part to Lukoil and ConocoPhillips, we will introduce a pricing policy that would enable us to stabilize the prices of gasoline and diesel fuel," Ivan Paleichik, Lukoil Baltija CEO, said in a press release last week.

Two weeks ago Lukoil became the first Russian oil company to announce a freezing of retail fuel prices at its Russia-based filling stations until the end of the year. Later the drive was taken up by other oil companies.

Mazeikiu Nafta, which refines the crude supplied by Lukoil and other Russian suppliers, changed the formula for estimating wholesale gas and diesel prices early this year. The estimates, previously based on the average Rotterdam price for the last 10 days, were modified to apply a three-day average.

The refinery has been charged by Baltic officials for exploiting its monopolistic position during the current spike in world oil prices.

ConocoPhillips controls 14.8 percent of Lukoil and aims to raise its stake to 20 percent by the end of 2006.

Lukoil Baltija operates the largest chain of filling stations in Lithuania - a network of 114 outlets servicing some 200,000 drivers per month, the Baltic News Service reported.

Mazeikiu Nafta is the indirect owner of the Ventus-Nafta chain of filling stations.