Refinery woes persist, though Poles remain as determined as ever

  • 2006-08-16
  • Staff and wire reports

ALL EARS: Economy Minister Navickas (above) was eager to hear what Vavilov had to say regarding the pipeline breakdown.

VILNIUS - A visiting Russian senator has confirmed the seriousness of the pipeline breakdown that led to Mazeikiu Nafta being cut-off from crude oil deliveries, while Poland's PKN Orlen has reiterated its plans to acquire the Lithuanian refinery despite supply difficulties. Andrey Vavilov, a member of Russia's Federation Council, the upper chamber of Parliament, said the failure of the Druzhba pipeline that pumps Siberian crude to Mazeikiu Nafta, the only refinery in the Baltics, was serious and it is unclear when the pipeline would be back online.

"Currently, the supply is being affected at a lower pressure than before the accident. It is difficult to project when the previous pressure will be restored and the pipeline will regain its capacities," Vavilov said at a meeting with Lithuanian Economy Minister Vytas Navickas.

Vavilov ruled out political motivations for the development, suggesting the Mazeikiai refinery was too small to warrant any political decision. "The supply of crude is significant, while the refining capacities are insufficient. Thus, any decisions over the supply of crude to Mazeikiu Nafta will be based on purely commercial interests," he said.
Since pipeline supplies have been disrupted, Mazeikiu Nafta has been importing crude via its terminal in Butinge, which is supplied by tankers.

Prime Minister Gediminas Kirkilas said on Aug. 10 that Mazeikiu Nafta had secured sufficient crude supplies by sea for this month and next month. The refinery expects to receive 730,000 tons of crude in August instead of 830,000 tons, which it had planned to refine prior to an accident in the pipeline.
"We have secured crude supplies for August and September. As to the pipeline, we'll try to find out. We are planning to meet with our ambassador to Moscow next week. Officials from the Ministries of Economy and Foreign Affairs and other institutions will also discuss these matters," Kirkilas said in an interview with the Ziniu Radijas radio station.
Meanwhile, PKN Orlen, which recently bought some 84 percent in Mazeikiu for over $2 billion, stressed that it would not back out of the deal despite the hit Mazeikiu Nafta shares have taken on the market.

Chairman Igor Chalupec said at a news conference in Warsaw on Aug. 11 that the agreement price for the shares was not negotiable. "The acquisition price of Mazeikiu Nafta, as specified in the agreements concluded with Yukos International UK BV and the Lithuanian government, is a fixed price and may be reduced only in the event of payment of dividends from the 2005 profit to the existing shareholders," Chalupec said.
Mazeikiu Nafta decided in late May to pay no dividend from its 2005 net profit of 885.7 million litas (265.7 million euros) and instead carried it forward into the next financial year.

PKN Orlen Vice-president Cezary Filipowicz said in Vilnius on Aug. 8 that the pipeline crisis would not affect the company's intentions. "The incident and all those obstacles related with the supply of crude to Mazeikiu Nafta do not change our position. We will seek to obtain the permissions and close the deal," he said.
Asked whether the disruption to crude supply, which Russia claimed was the result of an accident in the pipeline, was actually Russia's attempt to ruin the sale of Lithuania's oil complex, PKN Orlen's vice-president said that he had no information to suggest that there were reasons other than an accident.

"Accidents do occur, then the repairs follow. We will see when the pipeline will be put back on line. We understand that everything is being done in order to have the pipeline running, since this is business. If things change, then we will return to this question," Filipowicz said.
PKN Orlen announced last week that it had submitted a preliminary application to the European Commission for permission to buy the Lithuanian refinery and said it would seek to finalize the deal as soon as possible, despite disruptions in crude supplies.