"A crack has opened in the dam and every effort is being made to deepen it further. If everything proceeds according to plan, Mazeikiu Nafta should be able to buy about 40 percent of its total supplies without LUKoil," said Aleksandras Abisala, president of a consultancy.
"As Mazeikiu Nafta increases its purchases of crude oil directly from suppliers outside of LUKoil, we should see our company's financial situation improve.
"The fact that losses in March, when Mazeikiu Nafta bought more oil from other suppliers, were considerably less than in January is proof of this," said Jim Scheel, general director of Mazeikiu Nafta.
According to the U.S.'s generally accepted accounting principles, Mazeikiu Nafta, 33 percent owned by the U.S. company Williams International, posted a loss of 84.67 million litas ($21.16 million) for the first quarter of 2001, versus a loss of 18.8 million litas in the same period last year.
Mazeikiu Nafta blamed the first quarter loss on unfavorable price fluctuations in the oil product market and attempts by the Russian oil giant LUKoil, the crude supplies coordinator to Lithuania, to force the company to pay more for oil than other refineries.
The Lithuanian company expects to refine 7.1 million tons of oil at the Mazeikiai plant and ship 6 million tons of crude through the Butinge terminal this year.
Tadas Augustauskas, head of the information service at Mazeikiu Nafta, said Karlak Participation, a company registered in Cyprus, would supply crude extracted by the Russian company Tyumen Oil, adding that the first shipments should reach Lithuania in May.
It should supply around 1 million tons of oil by the end of this year.
Mazeikiu Nafta is also working with YUKOS, Surgutneft, Slavneft and some smaller oil suppliers.
Tyumen Oil, owned by the Russian Alfa Group and U.S.-Russian Access/Renova, ranks number two in reserves and four in production among Russian oil companies.
Among other positive things in comparison with LUKoil, Tyumen Oil has an outstanding American CEO and president, Simon Kukes, aged 53.
The Wall Street Journal Europe's Central European Economic Review named Kukes as one of Central Europe's top 10 executives of 1998. Last year, he was named best manager in the oil and gas sector by the Russian business weekly Company.
Under Kukes' leadership, Tyumen Oil was selected as the world's best oil and gas company of 2000 by Financial Times Energy.
Surprisingly, both Kukes and other chief executives of Tyumen Oil have strong business contacts in Oklahoma: the Williams energy and communications group has its headquarters in Tulsa.
This American background might help Williams, since communication with the Lithuanian government as well as with Russian businesses has been a major problem.
"We had expected to resolve issues in a shorter period of time. The Americans had expected the normal business logic to take precedence in this part of the world sooner," says Abisala.
Abisala, a former Lithuanian prime minister, has acted as privatization consultant for Williams International, which acquired 33 percent of shares and operational control of Mazeikiu Nafta in October 1999. The Lithuanian government holds 59.7 percent of shares in Mazeikiu Nafta.
Meanwhile, the message from Vilnius to LUKoil is the same - Lithuania does not intend to give LUKoil operational control of Mazeikiu Nafta, or allow it to share the operator's rights with other shareholders, Lithuanian Economy Minister Eugenijus Gentvilas said last week after a meeting between Prime Minister Rolandas Paksas and Mazeikiu Nafta's managers.
The managers of Mazeikiu Nafta have promised to take steps towards improving the company's performance, while the government has pledged to monitor Mazeikiu Nafta's operations more closely and even initiate changes to the company's management if it fails to show any signs of progress.
"So far, we have not formed the conclusion that bad managers are working at Mazeikiu Nafta, but there are signs that not everything is optimum there," Gentvilas said.
"The government has eight to 12 measures that can be used if it sees that Mazeikiu Nafta is mismanaged. One such measure is calling a shareholder's meeting and assessing the board's activities."
Ivan Paleychik, chairman of the board of LUKoil Baltija, the Russian company's local subsidiary, confirmed that LUKoil would not agree to acquire shares in Mazeikiu Nafta if Williams had operational control of the company.
"LUKoil has other options: to build an oil refinery of its own, or buy new plants. But Mazeikiu Nafta and other companies must understand that the owner of the resources will dictate the terms, not the owner of the plant," he said.
"LUKoil will certainly survive without Mazeikiu Nafta, which is decidedly moving closer to bankruptcy."
"Mr Paleychik's public comments confirm his strategy to try and throw Williams out of Lithuania by siphoning money from Mazeikiu Nafta, increasing the company's losses and hindering direct supplies from other Russian oil producers," said Randy Majors, board chairman of Mazeikiu Nafta.
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