Williams: one more resignation, more uncertainty

  • 1999-11-18
  • By Peter J. Mladineo
VILNIUS - The latest to leave in the afterglow of the Williams deal
is Elena Leontjeva, who tendered her resignation as economic adviser
to President Valdas Adamkus before completion of what she calls the
"scandalous sale of Lithuania's oil complex." Leontjeva will now
devote all of her time to the Free Market Institute where she is

While Leontjeva conceded that the Williams deal was not the sole
catalyst for giving notice, she said that "inappropriate government
actions discredited the idea of privatization, open markets and
private investments."

Leontjeva added that maintaining her two jobs became too heavy a
burden because of both growing ideological and practical
contradictions, Leontjeva said.

"I could not afford any longer to waste my time on seeking new
political compromises when this could not change the official line,"
she said.

Leontjeva said her exit was not a criticism of Adamkus as much as the
politics-as-usual that made Adamkus a lame duck.

"In general, Adamkus cannot always promote the changes he would like
to promote," she said.

Leontjeva and other economists seem to agree that the Williams deal,
which calls for a 33 percent stake of the Mazeikiai oil complex to be
transferred to Williams International for $150 million after the
Lithuanian government loans it $344 million for upgrades, is both an
example of a botched privatization and a potential disaster for the
Lithuanian economy. "What's wrong is the very approach to
privatization of Mazeikiai, since the pipeline and the refinery were
never suggested for privatization as one entity," Leontjeva said.

Leontjeva was especially critical of the government's amending laws
to specifically name Williams as the strategic investor in the oil
complex. "Equal treatment should be given to people and entities
within the law," she said. "When you name a concrete entity within
the law, it's a very cynical violation of this principle."

Also, Leontjeva felt that this approach, ironically taken to help
privatize Mazeikiai rapidly, actually made negotiations longer "and
provided no space for Lithuanian authorities to really negotiate the

Another economist, Eugenija Martinaityte, director of the Lithuanian
Banking, Finance and Insurance Institute, agrees that Lithuania was
unable to negotiate effectively.

"We are not well-prepared for hard negotiations," she said. "The tone
and style of the agreement is really discriminatory for Lithuania.

"Formerly we were the owners of Mazeikiu Nafta, so we had the right
to dictate conditions. But in this case it was the other side, the
buyer, that dictated the conditions, and that's no way to negotiate,
because on one said we just agreed with everything. It was too open
for the buyer."

Both Leontjeva and Martinaityte see eye-to-eye on another point: That
direct criticisms of the economic feasibility of the deal cannot
really be stated because so many of the terms are secret.

"Nobody knows all the details, because those people who were able to
look at the draft agreement had to agree that they would not disclose
this information to anybody," Leontjeva added. Rasa Mokunaite,
director of the Economic Research Center, refused to comment.

"It's very hard to speak about it at all when you have no
information about it," she said.

Still, Leontjeva concedes, some of the fragmented information about
the deal that appeared in the media "are close to the truth." She
mentioned press reports that the state value-added tax would not be
applied to products of the refinery. And, there is a strong
possibility of increased import tariffs if Mazeikiai buys more
expensive raw oil, which is a near-certainty with Russia's Lukoil
still holding out on Russian crude.

Then there's the issue of the state's state-guaranteed loans to Williams.

"This contradicts the aim of privatization - to separate entities
from the state," Leontjeva said. "In the case of Mazeikiai the state
will still be largely responsible financially for the success of the
company. That's why I called this deal a sale but not a true

But Leontjeva is a moderate in her opposition to the Williams
agreement. While some are calling for a referendum that could
theoretically revisit the deal, Leontjeva is appealing for public

"I think it's irrational now to organize a referendum to question a
deal that's already been done because that will only frighten
Williams and probably make them more interested in short-term
benefits rather than in long-term involvement, and I think every
Lithuanian citizen is probably now interested in the success of
Williams. If they succeed, they will be able to repay those loans the
state guarantees, and the quicker they do it, the better for

As for short-term consequences of the deal, Leontjeva hopes the
Lithuanian government will help the country out of its economic woes
in more ways than cutting the budget. She advocates quickly
privatizing several other sprawling state-owned enterprises such as
Lietuvos Telekomas, Lietuvos Energija and Lithuanian Airlines.

"Rapid privatization will not only allow us to decrease potential
losses in other enterprises like we have in Mazeikiai, but it will
also create significant proceeds for the Lithuanian budget. For
example, people speak about 1.5 billion litas [$375 million] of
potential proceeds from the sale of telecom shares. If the government
rapidly privatizes it will have enough funds to address the problem
of fiscal deficits. I think it is a proper time for conservatives to
show that they really aim at conservative values. It is a good time
for them to regain their popularity through really conservative
action," she said.