Oil and politics shouldn't mix with Lithuania's NATO bid

VILNIUS - Oil is a dirty business. The stuff gets under your skin, the smell infects your sinuses, and when it burns, it always leaves a string of hydrocarbons behind.

No one knows that better than U.S. president George W. Bush, the former Texas governor and a former oil company executive. As the G8 leaders met in Genoa this week, protesters were busy outside the gates in amateur experiments with petrol bombs. A little to the north, negotiators burnt the midnight oil in Bonn trying, and failing again, to make the Kyoto agreement on CO2 emissions acceptable to all parties.

What is it about oil, that leftover from the Carboniferous Age, that makes leaders belligerent and dinosaur-like in their behavior? In the northeast of Europe power in the energy sense has long been closely linked to power in the political sense. Strikes by coal miners were the political litmus tests for the Soviet Union's Gorbachev and Russia's Yeltsin.

More recently Viktor Cherno-myrdin, allegedly the de facto owner of Gazprom, was sent to Kiev as Russian ambassador to sort out the political and energy power crisis there. Lithuania and Latvia's marine border dispute was always about potential oil fields lying offshore in the Baltic Sea, potential sources of real income for strapped state coffers.

Slippery substance

It gets cold in the north. Energy takes on a vital significance it doesn't wield in milder climes. It also takes on a strategic sense.

In 1990 the Soviet Union began an economic blockade of Lithuania to press its Parliament into "freezing" the act restoring national independence. Lithuanians were hardest hit by the lack of natural gas and petroleum.

Having weathered out that winter, Lithuania's electorate and leaders fully understood the significance of the country's dependence on Russia to meet its energy needs. The country's new leaders undertook an ambitious, sometimes seemingly foolish, initiative to build the floating oil terminal at Butinge, along Lithuania's marine border with Latvia. Besides exporting oil, Butinge would serve as a port of entry for foreign tankers if Russia turned off the taps for an extended period.

Lithuania already had a Soviet-built refinery near the town of Mazeikiai. The country could expect to import expensive Western or Middle Eastern crude and process it domestically in case of crisis.

Russian oil supply has frequently been disrupted over the last decade, and the administrations of Putin and Yeltsin have used oil and natural gas for political leverage in Moldova, Ukraine and other CIS countries. But the big crunch never came. Mazeikiai continued to operate commercially, usually at a profit, until the Russian economic crisis hit Lithuania in 1998. Its turnover began to approach $1 billion annually, accounting for 8 percent of Lithuania's total economic turnover and making Mazeikiu Nafta the largest company in the Baltic states.

Somewhere along the road to a prosperous future Lithuania's oil industry - meaning its pipelines connecting to Russian suppliers, the oil refinery at Mazeikiai and port operations at Butinge and Klaipeda - got mired down in the muck surrounding oil the world over.

In privatization negotiations with Lithuanian officials in 1998 and 1999, the only bidder for Mazeikiu Nafta, the Tulsa, Oklahoma-based gas pipeline and supply company Williams International, resorted to tactics that can hardly be called ethical business practice, observers say. When they ran into trouble, the American team invariably went higher up, knowing they had the full support of leader of the then ruling Conservatives and Parliamentary Chairman Vytautas Landsbergis.

Somehow Williams managed to strike a deal with Economy Minister Vincas Babilius for double compensation from the Lithuanian budget. Lithuanian politicians began to work actively against their own negotiating teams when a new Conservative economy minister, Eugenijus Maldeikis, felt that the Williams deal was unfair for Lithuania. Meanwhile, Rasa Jukneviciene, Andrius Kubilius and Vytautas Landsbergis, the three leaders of the Conservative Party, began to maintain that the Williams deal would deliver NATO membership. The deal split the Conservatives in half before it was finally signed with Kubilius as prime minister.

Rubber-stamp deals

Skip forward to the last week of July 2001. The modernizations Williams promised to make to Mazeikiai in order to allow the profitable import and processing of non-Russian crude have not materialized. The Social Democrats and their allies the Social Liberals, the main critics of the deal with Williams, are back in power and calling an extraordinary session of Parliament to do what they objected to back in 1999: to rubber-stamp new legislation to meet Williams demands.

The Parliament will meet July 30 through August 3 to hear amendments proposed by Williams to the law privatizing the remainder of Mazeikiu Nafta and on procedures at shareholders meetings.

Rubber-stamping is a fitting term. When the Conservative government who signed the deal in the fall of 1999, giving Williams a minority stake in the state enterprise but exclusive rights to administer funds and operate the refinery, finally sat down to sign the contract, Sigitas Kaktys, a municipalities and government reform minister later ousted on conflict of interest charges, discovered that all 2,000 plus pages had to be signed individually. Kaktys was resourceful and came up with a rubber stamp of his signature, sat a young ministerial secretary down at the table and told her to finish the project.

Throughout the deal the Conservatives outdid their Soviet predecessors in their willingness to suspend belief and tow the party line for the general good of the people. Williams also played the game, with presentations of Lithuanians looking to "a bright tomorrow," probably not realizing the undertones of such statements on a post-Soviet crowd.

As late as this spring Williams was still making Soviet-style faux pas. When a worker died in an industrial accident at Mazeikiu Nafta earlier this year, the company didn't release news about his death for several days. During a recent oil spill at the Butinge terminal, Williams took to the skies and sprayed biological preparations into the Baltic Sea without seeking permission first from the Lithuanian environmental authorities.

Williams has continued to operate under a siege mentality in Lithuania. Originally, the offices of Williams Lietuva, the offshoot of Williams International which itself is an offshoot of the William Gas Pipeline company in Oklahoma, were housed behind a thick metal security door with no markings and only a keypad at the entrance at the Physics Institute in Vilnius. Since 1999 a sign has gone up downstairs showing the way, beyond several layers of plate glass and security stops. But Williams' webpage lists no address in Lithuania, only e-mail addresses.

Pressure letters

Over the last month-and-a-half Lithuania's leaders have received no less than six letters from high U.S. officials, all of them mentioning NATO membership and U.S. investments. The first and most categorical in the series came from U.S. Senator Gordon Smith to Parliamentary Chairman Arturas Paulauskas and then-Prime Minister Rolandas Paksas, saying he would find it hard to support Lithuania's bid to join NATO if the country failed to create a favorable investment climate. He mentioned Williams by name.

Williams was then putting the finishing touches on a deal with Russia's Yukos for long-term supply at annually fixed amounts, something the earlier supplier LUKoil would never agree to without a stake in the company. Yukos would get a share, some 25 percent, after a redistribution of equity in Mazeikiu Nafta.

Later, President George W. Bush and Secretary of State Colin Powell sent letters to Lithuanian President Valdas Adamkus, Paulauskas and Lithuania's new Social Democrat PM and former President Algirdas Brazauskas. In the latest letter, Powell addressed the deal with Yukos directly, according to media reports.

If they held on to any doubts before, Lithuania's political elite quickly were convinced that NATO membership was quid pro quo for supporting the Yukos deal with Williams. As NATO's most powerful member, the argument went, America could pretty much dictate whatever it wanted in exchange. Bush's Texas background in oil was pointed to. How else should the signs emanating from Washington be interpreted in Vilnius?

Yet Williams itself does not have an oil background. Mazeikiu Nafta is its first major step beyond the borders of the United States. And what could the U.S. gain by linking NATO membership to an oil deal? Was it another case of NATO euphoria in Lithuania leading to strange conclusions?

A highly-placed source in the Bush administration told The Baltic Times there was no link and that Lithuanian membership in NATO will depend wholly and singly on the execution of its NATO-designed Membership Action Plan up until the Prague summit in 2002, when an announcement on new members is made. For now, Lithuania will have to play guessing games.