Anyone who would have bet six months ago on a Polish refining and retail gasoline company taking control of Lithuania's oil refinery would have been labeled a poor analyst, if not slightly mad. Given the heavyweight competition in the contest, most believed PKN Orlen, which doesn't extract a single drop of crude, didn't have a chance at becoming majority owner of Mazeikiu Nafta, the Baltics' only oil refinery. In fact, some Lithuanian leaders, including the prime minister himself, were utterly reluctant to consider the idea. Why, after all, would the country choose to go down the same road twice, they asked rhetorically.
History was against PKN Orlen, a relatively young company with bold ambitions (which helped lay the ground for the largest scandal in Poland in the last 15 years). Several years ago Lithuania chose Williams International, a U.S. oil company, to be Mazeikiu Nafta's strategic investor, much to the anger of Russian oil interests. At the time the right-wing government feared Russian ownership of a corporation that accounts that 10 percent of GDP, and was hedging its bets that Williams' executives would be able to work out a supply deal with Russian producers. Nothing of the sort materialized, and Mazeikiu Nafta floundered. Eventually Williams International cut its losses and bowed out. (To be sure, Williams suffered equally from Enron, whose bankruptcy occurred at the same time. In the wake of the largest corporate scandal in U.S. history, energy companies were forced to cut back high-risk operations and investments.)
Realizing its error of judgment, Lithuania agreed to bring a Russian company to Mazeikiu, settling on no one less than Yukos, at the time Russia's largest producer of crude oil. It turned out to be bad luck, as the Kremlin not long thereafter began dismantling the company. Nevertheless, once round three began late last year, there was little doubt among Lithuania's leadership that the next investor should first and foremost be able to ensure steady supplies of crude, without which any refinery is useless.
But for a variety of reasons, Yukos chose to sell to PKN Orlen for nearly $1.5 billion. Time will tell whether the Russian company did a disservice to Lithuania, since as of now there is no telling how Moscow will react. Polish-Russian relations are frosty at best, and considering the new assertiveness of the Russian bear, PKN Orlen could find itself with one of the largest pink elephants in Eastern Europe. Like any other energy issue in Russia, be it vis-a-vis Belarus, Ukraine or China, the ultimate decision will be political.
By way of concluding, we would add that, unlike the world of sports, the world of business does not like an underdog. As soon as the Yukos-PKN Orlen deal was announced, Fitch, an international ratings agency, downgraded PKN Orlen to rating watch negative. Indeed, when one's future prospects are in the hands of the Kremlin, all bets are off.
