RIGA - The sale of Mazeikiu Nafta, Lithuania's supply-starved, fire damaged refinery, to PKN Orlen, Poland's retail fuel leader, despite of getting the green light from the European Commission, has once again encountered more hurdles during the past two weeks.
The latest controversy involves a supposed coup against Mazeikiu Nafta's current director, the American-born Paul Nelson English, by four members of the board from Russia's Yukos, the largest shareholder in the refinery. Yukos reportedly suspects English of working behind-the-scenes in favor of Poland's PKN Orlen. Yukos, which is headed toward bankruptcy and under control of creditors, has apparently accused English and PKN Orlen of conspiring to slow down fire renovations and artificially deflate the value of the enterprise.
The Lithuanian daily Lietuvos Rytas reported on Oct. 30 that management is in turmoil and claimed that English was in secret talks with Poland's PKN Orlen to conspire how to keep the refinery from working at full capacity which would increase its value and potentially jeopardize PKN Orlen's bid for the refinery.
Indeed, despite reports that the refinery was looking to import vacuum distillate from as far away as Belarus and Russia to keep the plant operating, plans to restore the refinery to full capacity are already behind schedule.
In addition, a revised post-fire evaluation of the company's finances showed that the fire caused 130 million litas (37.6 million euros) worth of damage resulting in the company's profit forecast for this year almost cut in half, from 507 to 245 million litas.
A combination of lower global oil prices also impacted the company's bottom-line, so the empty pipeline and slow repairs only exacerbated Yukos board members' concerns about Mazeikiu Nafta management's ability to maintain operations. In the meantime, if oil prices remain low in the short-term, banks will be more likely to finance the PKN Orlen deal thus keeping the refinery in Western hands.
But the Lithuanian government, which owns some 40 percent of Mazeikiu Nafta, has no plans to let current director English go. The director himself denied that he will be leaving his post, and on Nov. 8 he even claimed that the Yukos sponsored coup against him may have been planned in Moscow.
"Why were the board members opposed to such a transaction? This is a real secret. There is not a serious reason, unless you remember that there are other interests as well. It is no secret that Russia, the Kremlin, the Russian government did not want this plant to fall into hands other than Russian," he said on Nov. 8.
England claimed that trouble started with the board members as soon as he arranged supplies from countries other than Russia. English said that he had managed to negotiate a price for Venezuelan oil which was much less than the refinery was paying for Russian crude. "[With the changes] we could save 40 million to 60 million US dollars a year," English said on Nov. 8.
As The Baltic Times went to press, trade union representatives at Mazeikiu were echoing the concerns of Yukos about how the company is managed.
"With a management like this, we will never be able to avoid accidents. I have seen over the years how they work. They concentrate on the money and want to extract as much profit as possible," according to union chairwoman Virginija Vilimiene, as reported by the Lithuanian daily Lietuvos Zinios on Nov. 8.
She said that English was directly to blame for the string of problems that have recently plagued the company. Vilimiene said that her biggest concern was a shortage of personnel at the plant, which has created an increased workload for the existing staff and might lead to more incidents.Members of the trade union say that minor incidents are a frequent occurrence at the refinery, but the management conceals such information not only from the public but also from the staffYukos representatives are still steadfast on their plans to ouster the current director, however they are unlikely to succeed at the Nov. 9 meeting. .
The supervisory board currently has eight members, only five represent Yukos and three the Lithuanian government. However, three of the Yukos representatives are Russians and two are Americans. If the Americans and the government's representatives voted against English's dismissal, he would retain his job and end the attempt to disrupt the management at the company..
Russia still interested.
In the background of all this infighting at Mazeikiu, representatives from Russia's state owned Rosneft have been making it known that they are interested in purchasing a refinery in Europe.According to analysts from the Russian business press, the most likely target for Rosneft's European refinery would be Mazeikiu due to the fact that other possible refineries are too expensive.Whatever the outcome of the proposed sale, the Russians stand ready to establish the refinery back to business as usual circa 1986, where the oil, and the profits from its processing, flow eastward rather than westward.Meanwhile, Lithuania and Poland's leadership put on a brave face, and the countries' two presidents said the deal would be finalized..
"We are determined to do everything in our power for the deal to be closed," Polish President Lech Kaczynski said at the news briefing."The matter should be closed in the nearest future after countries make the correct decisions," President Valdas Adamkus said.The Polish government asked for a speedier approval of the deal from the European Commission and got it. The European Commission approved the deal on Nov. 7..
The deal is expected to be competed in February, "PKN Orlen and Yukos International UK have agreed that the purchase of a 53.7 percent stake in Mazeikiu Nafta will be completed no later than Feb. 28, 2007, subject to the satisfaction or waiver of all conditions to closing set forth in the sale agreement," PKN Orlen reported in a statement on Nov. 8.So it looks like the deal is on, and pending the outcome of the Nov. 9 meeting, and pending any further "accidents" at the refinery, all should go as planned.... We'll see. .
Hard luck deal
Once upon a time, Lithuania had a refinery that was connected to the Soviet oil pipeline network. In 1999 they sold a 26.9 percent of it to an American company, who then sold their share to the western oriented Russian oil company Yukos, which was consequently shut down by the Russian tax authorities. The bankrupted Yukos ended up with a 53.7 percent stake of the refinery.
In 2006 they tried to sell it again, but this time to a Polish company with no oil. Russia who has all the oil had an accident, which many suspect was intentional to protest that one of their oil companies did not win the bid, which turned off the pipeline in June of this year. However, Lithuania and the Americans saw this coming and had earlier constructed a crude oil import terminal at Butinge in the Baltic sea. Via Butinge and rail, the refinery began making other arrangements, accepting crude from as far away as Venezuela and Kazakhstan.
While the deal with the Polish company was being examined by the EU, there was a mysterious fire at the refinery. And the deal between the Lithuanian government, the oil-less Poles, and the bankrupt Russian company Yukos (just like the refinery's vacuum distillation unit) got held up in the smoke.
