State negotiates with Yukos, shops for lawyers in Holland

  • 2005-11-16
  • Staff and wire reports
VILNIUS - The government announced it had begun talks with Yukos, the embattled owner of the Mazeikiu Nafta refinery, in order to break the legal deadlock as a combination of Russian and Western creditors use international courts to prevent any sale of the asset.
"We want to start discussions with Yukos to consider a way out. We intend to meet the representatives of the concern and, if unsuccessful, we will organize a video conference," Nerijus Eidukevicius, deputy minister of economy and a task group member for talks with Yukos, said on Nov. 14.


Government officials also said they would hire Dutch lawyers to represent the state in what is becoming an increasingly complex and tenuous legal predicament. Lithuania wants desperately to find a new strategic investor for Mazeikiu Nafta, the country's largest corporation, and to earn a windfall from the sale of a 20 percent stake of stock it owns in the refinery.

Yukos, meanwhile, wants to sell its controlling stake in the refinery for approximately $1 billion as it struggles to defend owners' interests and remain a viable company.

Finally, a group of renowned international banks and Yuganskneftegaz, a former Yukos production subsidiary now controlled by the state-owned Rosneft, have managed to freeze Yukos' majority stake in Mazeikiu, which is registered in the Netherlands, and thereby prevent any sale.

On Nov. 21, the court of Amsterdam is to hear a joint claim lodged by Yuganskneftegaz, Group Menatep and 14 Western banks. The court, which last week heard Yukos' appeal to annul the seizure of the Mazeikiu Nafta asset, will announce its decision on Nov. 24.

If successful, Yukos is likely to use the window of opportunity to sell the 53.7 percent stake. Last week Lehman Brothers, a U.S. investment bank representing the Russian oil company, received four bids from potential investors 's Russia's Lukoil, which filed together with ConocoPhillips, TNK-BP, Poland's PKN Orlen, and KazMunayGaz, a state-run oil and gas company in Kazakhstan.

According to reports, Yukos would eventually have to choose three final bidders.

KazMunayGaz has been trying particularly hard to woo the government. Company officials said the firm could invest some $460 million into the refinery. Dias Suleimenov, CEO of KazMunayGaz trading house, told Brazauskas last week that the company could join forces with Mazeikiu Nafta in extracting oil in Kazakhstan.

"If KazMunayGaz wins and buys a stake in Mazeikiu Nafta, the latter company could apply to the Kazakh government for oil surveillance together with KazMunayGaz, and, if successful, for the production of oil as well," Suleimenov said.

The chance at grabbing an upstream production asset would probably seem too good to be true for Lithuania's leadership, which has been continually troubled by supply shortfalls at Mazeikiu Nafta, the Baltics' only refinery.

In September, KazMunayGaz and Transneft, Russia's pipeline monopoly, concluded a 10-year contract on the supply of 12 million tons of crude to Lithuania. What's more, KazMunayGaz, which operates a chain of filling stations in Kazakhstan and is seeking to take over some stations in Western Europe, is ready to develop the fuel retail business in the Baltic state.

Still, the Lithuanian government has shown where its preference lies 's with the British-Russian joint venture TNK-BP, though it has reiterated that it is keeping the doors open to other investors.

Eidukevicius said there were no meetings scheduled with TNK-BP this week.

Politicians have begun to speculate on worst-case scenarios. Prime Minister Algirdas Brazauskas acknowledged that if Yukos' stake in Mazeikiu Nafta were put up for auction, it would complicate the government's plans.

The government has been empowered to borrow some 1 billion euros on financial markets to buy Yukos' shares, which it would in turn sell to a strategic investor.

Commenting on news from the Netherlands, he said that the government could do nothing but wait for the court's decision on Nov. 24. "This is not a simple matter. This asset is worth billions. The court has been very cautious. Experts will be consulted to make an optimal decision," he said.

Previously the court has recommended that Yukos' stake be sold for the highest price possible to satisfy creditors' demands.

Last week the government set up a working group to negotiate the purchase of Yukos' stake directly from the Russian company. The group consists of Economy Minister Kestutis Dauksys, his deputy Eidukevicius and Saulius Specius, adviser to the prime minister.

"This working group will have the authority to conduct detailed negotiations," Brazauskas told reporters Nov. 9.

The prime minister said that the government was not considering the possibility of Mazeikiu Nafta shares being sold through the Amsterdam stock exchange. "We aren't considering it, but we will when there is a need. I can't answer this question on the spot," he said.