Cabinet chooses TNK-BP, but doors remain open

  • 2005-10-26
  • Staff and wire reports
VILNIUS - The government decided last week to start talks with TNK-BP, the Russian-British joint venture, on putting together a holistic purchase-investment agreement for a controlling stake in Mazeikiu Nafta, a refinery and oil terminal complex and Lithuania's largest enterprise.
Prime Minister Algirdas Brazauskas immediately followed up the decision with a statement to the effect that the door was still open to other potential investors, which include Lukoil and Kazakhstan's KazMunaiGas.

"There are five or six companies that are likely to participate in the negotiations and we have no right to prevent them from negotiating with Yukos. We'll join at a later date," Brazauskas said Oct. 19.

"We have only stated our position that we'll negotiate with TNK-BP first. If these talks fail, we'll negotiate with other investors. We don't have any list. This will depend on the situation," he said.

When asked if the price of Mazeikiu Nafta's shares had already been discussed with TNK-BP, the premier said that, "there are certain ideas regarding the price," but declined to elaborate.

He confirmed that he wanted the talks to be concluded by the end of the year.

The entire scenario is as delicate as it is complex, with the Lithuanian government holding talks with potential buyers of Yukos' stake, while Yukos officials hold their own negotiations in parallel with many of the same companies. Government officials are also holding talks with Yukos in an attempt to buy the latter's 53.7 percent stake in Mazeikiu Nafta, which it can in turn sell to a strategic investor for a premium.

In the meantime, Russian authorities are on the sidelines trying to prevent any sale of Yukos' assets since the oil company's outstanding tax arrears still amount to over $7 billion.

The Russian Court Marshals Service this month announced it would begin seizing and selling off assets in order to retrieve the unpaid taxes.

To complicate matters, legal ownership of the Mazeikiu refinery lies in Holland with two Yukos subsidiaries. This month a Dutch court arrested the assets on request from Yuganskneftegaz, a former Yukos production subsidiary now under control of the state-owned Rosneft. The arrest will last one month.

"Yukos is under attack from all sides," a former Yukos executive told The Moscow Times this week on condition of anonymity. "It's in conflict with the Lithuanian government. There's a conflict between the main shareholder and the management on how to pay off its debt, and there's a potential conflict between the Russian and Lithuanian governments on whom to sell the assets to. Yukos is caught right in the middle."

Brazauskas said that the government might hire lawyers and participate in court proceedings in the Netherlands as a third party.

Prospective investors are supposed to present Yukos their bids by Nov. 10.

The government is hoping to rake in approximately 1 billion litas (290 million euros) from the sale of part of its interest in the refinery, which, if successful, would be the first time the government actually walked away from a sale of the refinery with cash, the prime minister has said in the past.

Yukos reportedly wants approximately $1 billion for its majority interest. Considering rising energy prices and a dearth of refinery capacity in the region, including Russia, the company is likely to get it.

Despite the government's choice of TNK-BP, Russia's second largest oil producers, other potential investors haven't given up hope. On Oct. 24, representatives of PKN Orlen, Poland's largest oil concern, were in Mazeikiai to visit the refinery, while on Oct. 27 managers from Kazakhstan's KazMunaiGas were expected to inspect the refinery's facilities.

Similar evaluation visits were made by U.S. Conoco-Phillips and Lukoil last week, according to reports.

"Usually they meet with the chief executive officer, review the facilities and hear our presentation," Giedrius Karsokas, Mazeikiu Nafta's communications director, told the Baltic News Service.