According to the report, a 885.9 million litas ($221.4 million) loan has been used inefficiently by U.S.-based Williams International, the refinery operators.
The report blames Williams for breaching an original agreement regarding investment of the loan. Only 8 percent of the total amount of the loan went toward investment, with the rest being used for working capital. Mismanagement was also mentioned in the report as a reason for a 54 million litas loss within the first four months of 2001.
Prime Minister Rolandas Paksas demanded that company executives provide a comprehensive explanation and sent Minister of Economy Eugenijus Gentvilas to Mazeikiai for talks with the oil refinery's top officials this week.
Meanwhile, the Lithuanian government has offered Russia's LUKoil a 33 percent stake in the refinery.
The government originally floated a price of 300 million litas for the stake. LUKoil has valued the stake at about 200 million litas. Negotiations will likely start somewhere between the two figures, analysts predict.
Political parties are also closely watching developments. The Conservatives, the former governing party responsible for the agreement with Williams to operate at Mazeikiu Nafta, has already accused the state auditor's office of lobbying LUKoil interests.
Since the state audit office investigation got underway on order from the Lithuanian Parliament in March, there has been strong parliamentary lobbying to deprive Williams of sole operating rights at Mazeikiu Nafta.
The head of the parliamentary economics committee, Viktor Uspaskich, plans to hold a committee sitting at the Mazeikiu Nafta refinery.
The dilemma, according to him, is that either the government or Williams must go, as the agreement with the American company is disadvantageous to Lithuania.
Disagreement inside the ruling coalition over Williams' role and the oil refinery's operation may subsequently lead to political instability and resignation of the coalition government.
Jim Scheel, managing director of Mazeikiu Nafta, in a news conference on May 31, denied all the findings by the state audit office but one – that the company pays too much for crude oil.
"The funds lent to Mazeikiu Nafta were allotted for restoring the working capital, payment of bills and everyday needs, such as oil purchases," Scheel said.
The managing director said the basic problem was that the company was buying oil from a single supplier. Mazeikiu Nafta has failed to secure financing for the modernization program because it does not have long-term-supply contracts, he added.
Williams also denied the state auditor's allegations that the company is not interested in making a profit.
"When we buy oil directly from Russian suppliers, then we will become one of the most profitable oil refineries," Scheel said.
Mazeikiu Nafta has repeatedly accused LUKoil of blocking crude shipments to Mazeikiu Nafta by other Russian oil companies.
As a result of joint efforts to solve the crude-supply problems, 33 percent of Mazeikiu Nafta shares were also proposed to another Russian oil company – Tyumen Oil.
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