Report shows extent of Mazeikiu's financial woes

  • 2007-04-25
  • By TBT staff

MEAT AND CRUDE: At their upcoming talks, Barroso and Putin will have to come to terms over Polish meat and crude oil for Lithuania.

VILNIUS - Lithuania's largest corporation, Mazeikiu Nafta, issued its financial results for 2006 last week in a report showing the full extent of one of the most difficult years in the company's 27-year history. Earnings plummeted from $313 million in 2005 to $65 million last year, or from $0.44 to $0.09 per share. The refinery's sales of crude were down in volume terms, declining from 8.5 million tons in 2005 to 7.9 million tons last year.

The report highlights the impact that the disruption of crude supplies in July and the fire in October had on the company's financials but keeps an upbeat tone looking forward.
Last July Russia ceased supplying crude to Lithuania, citing a pipeline accident in Belarus. Baltic and Polish politicians, however, believe that Moscow is punishing Lithuania for not selling Mazeikiu Nafta to a Russian oil company, which the Kremlin had made clear it wanted.

Russia's pipeline monopoly, Transneft, has so far refused to repair the damage and has even refused to show it to Lithuanian officials.
Later, in October, a major fire broke out at the Mazeikiai-based facility, causing up to 38 million euros in damage. A vacuum tower in the bitumen production unit was completely destroyed, although the company report states that a refurbished tower was launched in February this year.

On the upside, sales were up at the Baltics' only refinery in dollar terms, climbing 6.8 percent to $4.2 billion for year.
What's more, the company has managed to win back lost market share in Latvia, according to reports. In the first two months of 2007 Mazeikiu Nafta supplied some 75 percent of gasoline to Latvia, up from 48 percent during the same period in 2006.
Still, throughput is expected to continue declining as the company relies on supplies coming by tanker via the Butinge terminal. In its report, the refinery predicts that throughput will amount to 6.5 million tons of feedstock, far below its potential of some 15 million tons.

"The combined effects of the suspension of oil supply via the pipeline and the fire at the oil refinery had in 2006, and will continue to have in the future, significant adverse effects on the company's operations," the report states.
In January 2007 PKN Orlen, which has acquired a 90 percent stake in the refinery, signed an agreement for the exclusive right to supply Mazeikiu Nafta with crude. The agreement will last an indefinite period.
Lithuania, however, has stepped up diplomatic activity in recent weeks to get Brussels to talk with Russia about the de facto embargo. According to reports, EU foreign ministers are set to discuss Mazeikiu Nafta at their meeting on May 14 - 15 in the run-up to European Commission President Jose Manuel Barroso's meeting with Vladimir Putin in Samara, Russia.
Lithuania has threatened to join Poland in the latter's veto of a strategic agreement between the EU and Russia if Brussels doesn't help the Baltic state resolve the oil supply problem.

"I wouldn't rule out Lithuania going it alone on the veto 's they are a hot-blooded country," one EU diplomat was quoted by the EUobserver as saying this week.
Meanwhile, the company's labor troubles continue, as the refinery's trade union has appealed to the government to ban alleged salary discrimination in which Polish workers are paid more than their Lithuanian counterparts.
Virginija Vilimiene, chairwoman of Mazeikiu Nafta trade union committee, told the Baltic News Service that for the same job foreign qualified employees are paid three to four times more.
"We think that the situation can be corrected only by the government or Parliament by changing the normative documents. It must be determined how much the foreigners coming to Lithuania can earn because the government must defend the rights of Lithuanian employees," Vilimiene said.

She warned that if the situation didn't change, workers could strike.
The government retains a 10 percent stake in the refinery, which is Lithuania's largest taxpayer.