Technical glitch halts crude delivery to Mazeikiai, Russia's Transneft quiet

  • 2006-08-02
  • Staff and wire reports

WHERE'S THE JUICE? Mazeikiu Nafta went a week without receiving oil deliveries from Russia, forcing the refinery to boost supplies from the Butinge terminal, which is due to close for maintenance in September.

VILNIUS - An unexplained technical malfunction has ceased pipeline-based crude oil deliveries to Mazeikiu Nafta, while Finance Minister Zigmantas Balcytis hinted that the entire $2 billion refinery deal with Poland's PKN Orlen could collapse if Russia moved to block the sale. Economy Minister Vytas Navickas said on July 31 that Russian crude oil was not flowing to the Mazeikiai refinery due to a technical problem in the pipeline somewhere in Belarus. As of Aug. 1 oil deliveries had not been resumed, though there was a report that they would on Aug. 2.

As Navickas said in an interview with the Ziniu Radijas radio station, "The situation turned for the worse on the weekend. A failure occurred in the pipeline on Belarus' territory. Technically, oil cannot be transported to Mazeikiai. Repair work is nearing completion and we are waiting for confirmation as to when oil deliveries to Mazeikiai can be resumed."

Mazeikiu Nafta Chairman Nerijus Eidukevicius told the Baltic News Service that a commission was appointed on July 31 to establish the cause of the technical failure that occurred in the pipeline section at Novopolock on July 29.
The Economy Minister also said that he was worried by the fact that Mazeikiu Nafta, the only refinery in the Baltics, had not yet received a telegram as to when 342,000 tons of Rosneft crude, scheduled for August, would be delivered to the refinery.
"It has not arrived yet, and we are seriously worried about that," he said.

Eidukevicius explained that the refinery planned to process 800,000 tons of oil in August, of which at least 100,000 tons should be delivered by a tanker. Navickas said that Mazeikiu Nafta currently had around 100,000 tons of crude imported by sea through its Butinge terminal. This amount is sufficient for about five days, he added.
"The refinery is ready for any circumstances. If we receive no crude by pipeline, it will be supplied by other routes 's by sea or rail," said Eidukevicius.

Navickas said that a ton of oil delivered by tanker costs around $10 more than that supplied by the pipeline, though this would ultimately mean lower profits for Mazeikiu Nafta rather than a sharp rise in gas prices, he added.
According to reports, Russia stopped pumping crude oil as early as July 24. To make up the difference, the refinery in Mazeikiai started pumping crude from Butinge, a terminal on the Baltic coast, on July 25.

Russia's monopoly pipeline operator, Transneft, had failed to confirm a failure as late as July 31. Several sources claimed the failure occurred on Russian territory, though there was no independent confirmation.
Mazeikiu Nafta delivered a batch of crude to Butinge earlier this month 's its first in several years. The company shipped 100,000 tons of Russia's Urals crude by sea.

Mazeikiu Nafta refined 4.7 million tons of crude in the first half of 2006, a rise of 6.4 percent year-on-year. The annual refining schedule has been put at 8.6 million tons, though with the Kremlin bristling at being left out of the recent sale, there are fears that pipeline-based throughput could be reduced to a trickle.
Finance Minister Balcytis said there is a possibility that Lithuania would not receive the expected money for its stake in Mazeikiu Nafta if Russia succeeds in blocking the sale of the crude refinery to Poland's PKN Orlen. In an interview with Ekstra magazine, the minister said, "The possibility of some changes in the (sale) process cannot be ruled out. Mazeikiu Nafta is a political object. But even if the worst should happen, we would still have various options to consider."

He added, "I believe that Poland will also protect its interests and that the process will end the way we expect it to."
PKN Orlen has agreed to buy a 53.7 percent stake in Mazeikiu Nafta from Russia's Yukos 's whose creditors last week decided to liquidate the company 's and another 30.66 percent of shares from the Lithuanian government.
When asked, Yukos lawyers could not say what measures Yukos' Russian creditors could take to foil the sale of Mazeikiu Nafta, though they admitted in an interview to Verslo Zinios that the Russians could "play their tricks again."
The lawyers stressed that Yukos is not the direct owner of the controlling interest in Mazeikiu Nafta and that it is Netherlands-registered Yukos International UK that does. Thus, anyone willing to ruin the deal on the sale of Mazeikiu Nafta would need the respective decisions of Dutch or Lithuanian courts.

For its part, PKN Orlen is plowing ahead with arrangements to win European Commission approval of its takeover of Mazeikiu Nafta. The concern believes that the commission would state its opinion on the transaction by Sept. 30.