Lithuania answers Moscow's oil embargo with 'threat' of railroad repair

  • 2006-08-23
  • By TBT staff
VILNIUS - Irked by Moscow's reluctance to fix a faulty oil pipeline that feeds Lithuania's refinery, Foreign Ministry officials hinted to their Russian colleagues last week that authorities might begin repairs on the railroad leading to Kaliningrad, disrupting regular rail service to the exclave.

Before Moscow could respond, however, top Lithuanian officials downplayed the news, saying repairs would only be carried out "if absolutely essential," and that there would be no political motivations.
"Repairs will take place only in a case of necessity - not for political reasons," Prime Minister Gediminas Kirkilas told reporters on Aug. 21.

His words, however, seemed to contrast those of President Valdas Adamkus, who on Aug. 19 said he supported any necessary repairs, and that the state had to ensure the safety of passengers.
Adamkus was responding to a report that appeared the previous day, when, according to the Baltic News Service, Russian diplomats were informed by Lithuanian officials that "complex repairs on worn out rails leading to the Kaliningrad region, including the Kena-Kybartai strip, may be started in the near future."

As the source told BNS, "This may cause passenger train traffic restrictions and reduce the volume of some special cargo, including military cargo, transported via this part of the railroad to the minimum."
Lithuania's Foreign Ministry seemed to be aggravated by an interview last week with the head of Transneft, Russia's oil pipeline operator, who said that Russia was unlikely to repair the pipeline leading to Mazeikiai, home of the Baltics' only refinery.
Transneft CEO Semyon Vainshtok said the company might shut down the spur of the Druzhba pipeline leading to Lithuania due to simple economics.

"You understand that the lifespan of a pipeline, according to industry norms, is 30 years. Druzhba-1 is 42," he told The Moscow Times. "It is made out of metals that are now forbidden."
For Lithuanians, however, the statement smacked of insincerity, given that the Kremlin took umbrage at the recent sale of Mazeikiu Nafta, in which Russian interests were left out and PKN-Orlen, a Polish firm, acquired the prize.
Russia's Yukos and the Lithuanian government sold a combined 84 percent stake in Mazeikiu Nafta for over $2.3 billion. Just weeks after the deal was finalized, Transneft cut off crude deliveries due to a supposed leak in the pipeline leading to Lithuania.
But Vainshtok denied any political motivations behind the cut off.

"We are an apolitical company," he said. "Thank God we were able to contain the consequences of the accident. But the oversight agencies, which are becoming stricter and stricter every year, have forbidden us to work [with the pipeline] at high pressure."
Vainshtok, a former executive of Lukoil, Russia's largest oil company that had lobbied Lithuanian ministers to acquire the Mazeikiai refinery, declined to say when Lithuania could receive crude via pipeline again, but said it could take years if another pipeline has to be built.

In the meantime, Lithuania is importing crude oil supplies through the Butinge terminal on the Baltic Sea, though this costs approximately $8 more per ton of crude than pipeline deliveries.
Last week, Prime Minister Kirkilas stated that although he did not want to believe that the cessation in supplies was political, there were "more and more signs of that."

Thus it would appear that Lithuanian officials are considering hitting back at Russia the one way they can 's by threatening to disrupt passenger and military transport to Kaliningrad Oblast, an extremely sensitive topic in Moscow.
It is unclear whether Lithuania's announcement came on its own initiative or whether the Foreign Ministry had backing from either the Poles or the European Union.

Poland, which now has a conservative president critical of Russia, is unlikely to stand around and watch as one of its investment plans is sabotaged.
Still, the Yukos-PKN Orlen deal exists only on paper and can still be reversed. In fact, legally PKN Orlen, which is awaiting EU approval before it transfers money for the stakes, could pull out of the deal, leading some to speculate over the fate of the Mazeikiai refinery.

As Nerijus Eidukevicius, chairman of the oil complex, told the Verslo Zinios business daily this week, "Mazeikiu Nafta is a well-developed structure, which has all chances to survive, remain on the market and compete successfully on its own. I have absolutely no doubt that Mazeikiu Nafta could survive if the deal with PKN Orlen fell through."
At the same time, he warned that Yukos' bankruptcy administrator might have different ideas and try to torpedo the deal with PKN-Orlen.

"I think the bankrupcty administrator will try again to review the deal. Now he has more options to do that. In fact, there are no arguments against this transaction. Yet it is too early to guess what may happen. The bankruptcy administrator has to review all the files," Eidukevicius said.
A Moscow court declared Yukos bankrupt on Aug. 1. Formally, however, the company still remains owner of a 53.7 percent stake in Mazeikiu Nafta through a Netherlands-based subsidiary.

Meanwhile, a majority of Lithuanian respondents said they supported restriction of Kaliningrad military transit should repairs of the pipeline to Mazeikiu Nafta continue.
Out of about 5,500 people who responded to the poll on the Internet-based news portal, 63 percent said they would support such a move. One fifth said they would be against such a move.