VILNIUS - Poland's PKN, Eastern Europe's largest downstream oil company, has said that it would build a pipeline to Latvia if it failed to cut a deal with the Lithuanian government on the purchase of Klaipeda's oil terminal.
"The map shows that Mazeikiai can be approached both from Liepaja and from Ventspils. These ports are within the area of our interest," Marek Mroczkowski, chief executive of Mazeikiu Nafta, the Baltics only refinery, told a news conference.
Since taking over Mazeikiu Nafta in 2006, PKN Orlen has said that it would like to acquire Klaipedos Nafta (Klaipeda Oil), a state-owned oil products terminal. The Poles want to build a product pipeline linking Mazeikiai, where the refinery is based, to the terminal, which would enable the company to boost exports of high-end fuel products.
Lithuania's government, which holds a 70 percent stake in Klaipeda Oil, has wavered on selling the asset.
PKN Orlen President Piotr Kownacki said that the group would prefer to take a majority stake in Klaipeda Oil, but added that it could settle for a smaller, blocking stake of 34 percent.
In Mroczkowski's words, "Our plans are to hold as many shares as possible, but looking from a perspective, that is not an obligatory condition. All would depend on a well-formulated shareholder agreement."
Vytas Navickas, Lithuania's economy minister, has said the government would decide whether to sell a stake in Klaipedos Nafta to PKN Orlen only after the Poles determined whether they would build a product pipeline from Mazeikiai to either Butinge or Klaipeda.
Butinge, a subsidiary of Mazeikiu Nafta, is an oil terminal north of Klaipeda not far from the Latvian border.
PKN Orlen officials, however, have made it clear that the choice of Butinge or Klaipeda did not depend upon them. "The choice depends on whether the local authorities concerned approve the route," Dawid Piekarz, the company's spokesman, told the Polish news agency PAP, adding that Klaipeda was the preferred option.
In December the Poles submitted two draft pipeline projects 's from Mazeikiai to Butinge or from Mazeikiai to Klaipeda 's to the Economy Ministry. Apparently fed up with the Lithuanians' wavering, they have started touring the region is search of other possible routes for the export pipeline.
"We have more than promising answers from our partners" in Latvia, Mroczkowski said, though he declined to elaborate.
As Kownacki was quoted as saying, "We are aware that it's a difficult decision, since Klaipedos Nafta is on the list of Lithuania's strategic enterprises, so the sale requires the approval of the Seimas (Lithuania's parliament)."
"I'm convinced that regardless of how difficult those talks will be, we will find a consensus," PKN Orlen's CEO said.
PKN Orlen said it would submit documents to the Lithuanian side on its vision of Klaipeda Oil's future.
The product pipeline, which would cost some $100 million, is part of an enormous investment plan PKN Orlen announced last year for Mazeikiu Nafta.
PKN Orlen said it was prepared to invest a total of $1.6 billion in the modernization and expansion of the refinery by 2012, although that sum does not include the possible purchase of a stake in Klaipeda Oil.
PKN Orlen owns 90 percent of Mazeikiu Nafta, Lithuania's largest enterprise. (The government owns the remaining 10 percent.) Since purchasing the stake for some $2.3 billion, the Poles have been plagued by troubles, particularly a supply embargo by Russia and then a fire in October 2006 that did nearly 40 million euros worth of damages.
The refinery now imports crude by tanker via the Butinge terminal 's sometimes from as far away as Venezuela 's which is significantly costlier than pipeline deliveries from Russia.
By owning a product pipeline, whether in Klaipeda or Liepaja, PKN Orlen will be able to ensure that it has the capacity to export the value-added fuel products it intends to make.
Also, Kownacki said on Feb. 7 that the company might sign agreements on purchasing gas stations in Lithuania in the first half of the year.
"There are chances to purchase land for the construction of gas stations and existing stations as early as in the first or the second quarter," PAP quoted Kownacki as saying.
PKN Orlen, which is the shareholder of Lithuanian oil concern Mazeikiu Nafta, by 2012 plans to introduce Orlen Latvia and Orlen Lietuva brands in the Baltic states, open 120 fuel retail stations in Latvia and Lithuania and win 20 percent market share in fuel retail in both countries.