VILNIUS - Mazeikiu Nafta, the only oil refinery and largest corporation in the Baltic states, saw its earnings plunge dramatically last year after suffering a fire in October and having its supply lifeline 's an oil pipeline from Russia 's severed in July. The company reported that earnings last year amounted to 192 million litas (55.6 million euros), a 78 percent fall from 2005, when the refinery posted a profit of 319 million euros. Remarkably, revenues in 2006 amounted to 11.8 billion litas, up 6.3 percent from 11.1 billion litas from the year before.
Still, CEO Paul Nelson English maintained an upbeat assessment of the situation. "The fire in autumn did not prohibit us from ending the year 2006 with profit," he said in a statement.
The company stressed that several factors played into the steep fall in profit, mainly a decline in refining margins throughout the world, higher crude costs after the July pipeline cutoff and a decreased efficiency of crude oil processing.
"Contrary to the earnings picture in 2005, following the fire, Mazeikiu Nafta suffered a steep decline in earnings 's that is, some of what the market gave in 2005 it took back in 2006."
Mazeikiu Nafta also underwent an ownership change last year. Poland's PKN Orlen, the largest oil retailer in Eastern Europe, purchased stakes from both Russia's Yukos and the Lithuanian government for $2.3 billion. The company is now squeezing out minor shareholders and will soon become owner of a 90 percent stake. The government retains a 10 percent interest.
Adding to the difficulties, PKN Orlen also underwent a management shakeup recently, which affected the refinery, and tension among Mazeikiu Nafta workers was on high due to allegations that Polish employees received higher wages than Lithuanians.
"We worked under difficult and complicated conditions, but we managed to ensure the quality of our products and satisfy the demands of our target markets all the while, focusing upon retaining and expanding our customer base," said Nelson.
The refinery stated that it sold 7.9 million tons of crude products in 2006, down from 8.5 million tons the year before. To make up for the sudden disruption of crude supplies in July, refinery managers were forced to import crude via the Butinge terminal on the Baltic Sea. This is significantly more expensive than getting the oil by pipe.
"The Baltic market did not suffer fuel shortages thanks to Mazeikiu Nafta, and our willingness to cover shortages in production by purchasing from the market, many times at a loss to MN," said Nelson.
