Pieces falling into place in oil deal puzzle

VILNIUS - The U.S. energy company Williams International, which hopes to buy at least a one-third stake of Lithuania's oil complex, and the Lithuania government suddenly seem close to wrapping up negotiations.

After sluggish progress over the summer, the two sides say they are now finally working out the final sticking points. Initial agreements are now expected to be signed on Sept. 9 with a final deal scheduled before the end of the month.

Back on Aug. 31, the Lithuanian Defense Council, consisting of Lithuania's top leaders, met to discuss the progress of negotiations with Economic Affairs Minister Eugenijus Maldeikis. That evening, Prime Minister Rolandas Paksas sent a letter to Williams International President John Bum-garner concerning the remaining few road blocks. Paksas has refused to comment about the letter's contents.

"I can say that negotiations are going smoothly and only a few technical issues remain. Everything else is agreed upon," said Jonas Cekulois, a spokesman for Paksas.

Lietuvos rytas, Lithu-ania's largest daily, however, claimed to have snagged a copy of the letter, which appeared in its Sept. 1 issue. According to the daily, Pak-sas wrote that the Lithu-anian side has decided to back Williams' previously expressed terms on such issues as transport, port taxes, rail tariffs and Mazeikiu Nafta's working capital financing and share sales to international financial institutions.

In short, Lietuvos rytas reported that the letter suggests the government aims to give Mazeikiu Nafta some special exceptions in rail and oil product export tariffs.

Williams Lietuva spokes-man Darius Silas also indicated that the letter had managed to clear up remaining issues. But before any initial agreement is signed on Sept. 9, Silas added that a few loose ends still need to be dealt with.

"It's fair to say negotiations are wrapping up and Sept. 9 is a date everyone is talking about. But before that occurs, some documentation needs to be finalized," said Silas. "For example, we still need a proper disclosure statement from Mazeikiu Nafta, so a lot of people on both sides are working overtime on getting all documentation finished."

Who will get a cut of the oil-complex pie and how big those slices will be is also beginning to come more into focus. Last spring, Williams sought and got approval from Parliament for an option to double its 33 percent stake in Mazeikiu Nafta over the next few years.

According to Silas, Williams is no longer seeking a 66 percent stake. If the Americans are able to finalize a deal for the initial 33 percent stake, they will then be able to increase their holdings to a total of 51 percent in coming years.

To upgrade Mazeikiu Nafta and finish construction on the Butinge import-export terminal, approximately $500 million will be needed from international finance institutions, who will also be allowed take a small stake in the oil complex. The European Bank for Reconstruction and Development has expressed an interest in coming on board by taking on part of the financing costs and getting a 10 percent stake.

Russian oil suppliers like LUKoil, which were spurned by the Lithuanians earlier on, will apparently get worked into the mix as well. Maldeikis and Williams representatives have suggested that oil suppliers will eventually be able to hold a 19 percent stake in the complex.

"Currently the deal is structured in a way that oil suppliers could get up to 10 percent," said Silas. "Now Mr. Maldeikis mentioned their possibly getting 19 percent in the future. It's possible that the EBRD could sell shares in the oil suppliers in the future. The EBRD is usually a short term equity holder. But all that is to be determined in the future," said Silas.

According to Respublika, Lithuania's second largest daily, LUKoil considers its prospective share percentage as too tiny and is still aiming at emerging as an equal partner. The Russian oil giant has supposedly said it would not give any crude oil supply guarantees to Mazeikiu Nafta if it is not given equal holdings in the company.

"It makes no difference for us whether we will have 10 percent of 19 percent of shares in Mazeikiu Nafta. No self respecting Russian company would give oil guarantees," Respublika quoted a LUKoil official as saying.

Of course, the only tangible sign of progress in negotiations and what the deal will actually look like will be only revealed if and when the deal is actually closed.

According to Silas, a quick end is important. It is necessary to get Mazeikiu Nafta, which has posted millions of litas in losses so far this year, up to snuff before the European Union ups standards of oil products in 2000 and 2002.

"Mazeikiu Nafta is still in dire straits," said Silas. "As [Williams Lietuva office director] Randy Major recently stated, it's time to change urgency into actions and results."