Energy trader monolith Enron Corp.'s collapse toward bankruptcy in the United States may only cause momentary shivers at fellow U.S.-based Williams International energy group.
But Williams position - and reputation - in the Baltics is nowhere near as stable, as financial woes surrounding its Lithuanian subsidiary mount.
Despite the downfall of Enron, which could prove to be the largest bankruptcy ever to hit the United States, Williams should meet or exceed all of its previously announced earnings targets and may even find new opportunities after the shockwaves subside, analysts say.
"We are traditionally conservative in managing our risk, so we currently believe our net exposure related to Enron will be less than $100 million," said Steven Malcolm, president and chief operating officer of Williams.
But Williams, which has been a trading partner with the dying Enron and which owns a one-third share of Lithuanian oil colossus Mazeikiu Nafta, has come under fire as Mazeikiu's debts grow.
Money madness
The latest flap between Williams and Lithuania stems from the U.S.-based company's decision to stop paying interest on more than 1 billion litas ($250 million) in government loans and not to cash in its zero coupon bond.
Liberal MP Rolandas Paksas, a former Lithuanian prime minister, is urging the country's government to replace managers of Mazeikiu Nafta because of the company's poor performance.
"The government should ask Williams' management to recall the mangers of the company who have failed to ensure profitable operations by the company," said Paksas, who is one of the leaders of the Lithuanian Liberal Union.
The government still holds a majority stake in Mazeikiu - nearly 60 percent - but operational control has been awarded to Williams for 15 years.
This isn't Paksas' first shot at Williams' stake in Mazeikiu Nafta.
The former prime minister resigned from office - accompanied by his economy and finance ministers - rather than approve Williams buying into Mazeikiu.
Instead Paksas successor, Andrius Kubilius, signed the closed-door deal with Williams - the only candidate.
Williams acquired 33 percent of Mazeikiu Nafta with $75 million in cash and $75 million zero coupon bond due March 1, 2002.
But Williams won't be redeeming the bond, said James Scheel, managing director of Mazeikiu Nafta, since the company's financial results were "below the government's forecasts."
A zero coupon bond is corporate debt security traded at a deep discount from face value because it pays no interest. Instead profit is redeemed at maturity for its full face value.
Concerns that the bond wouldn't be redeemed first surfaced in 1999, when the international auditing firm Arthur Andersen raised flags immediately after Williams and the Lithuanian government inked the deal on Mazeikiu.
The original investment agreement says that in late 2001 Williams will be compensated for the difference between Mazeikiu Nafta's earnings before interest, taxes, depreciation and amortization (EBITDA).
EBITDA, essentially revenue minus expenses - excluding tax, interest, depreciation and amortization - is a method of clearly tracking the amount of money a company is bringing in.
Because Mazeikiu's EBITDA amounted to 140.8 million litas and 74.5 million litas in the first 10 months of 2001, said Arturas Paulauskas, Lithuanian parliamentary chairman, compensation for the shortfall may account for the entire value of the bond.
Nor will Williams be paying interest on the loans the Lithuanian government extended because, the company said, the state didn't meet its obligations.
One of Mazeikiu's sticking points, managers added, was the government's failure to pass amendments to laws that would pave the way for the company's privatization.
The amendments were necessary because of a Constitutional Court decision finding the current privatization deal unconstitutional.
Mazeikiu Nafta cited Lithuanian foot-dragging on the privatization issue also slowed completion of a crude-oil-for-shares deal with YUKOS, Russia's number two oil company.
Regardless of who is responsible, Mazeikiu Nafta is bleeding money faster than ever, taking Williams' investment with it.
The oil company posted a preliminary loss of 175.3 million litas for the first 10 months of this year, a figure up 1.6 times over 2000's loss of 106.9 million litas in the same time period.
Oil bloopers
A recent oil spill from Mazeikiu Nafta's Butinge offshore oil terminal has done nothing to boost the Baltic image of Williams either.
The spill, which dumped an unspecified amount of crude and created a 1.5-kilometer-long and 400-meter-wide slick, was the second major oil accident this year and the third for the company since the terminal opened in 1999.
The two other spills took place Dec. 6, 1999, and March 6, 2001.
Both Lithuanian and Latvian officials blamed Mazeikiu Nafta and part-owner Williams for withholding information about the latest oil spill and have begun questioning safety standards at the plant.
The Latvian shoreline is only a dozen kilometers from Butinge and all three of the spills have threatened the country's coast.
Negotiations are still underway between Mazeikiu Nafta and the Latvian government over compensation for the March spill. Latvia is demanding 5 million litas for environmental damage.
And on Dec. 4 prosecutors from the port city of Klaipeda launched an criminal investigation into the November spill.
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