Yukos signs supply deal with Mazeikiu

  • 2002-04-18
  • Geoffrey Vasiliauskas

Things are looking up for Lithuania's financially troubled Mazeikiu Nafta oil refinery after it reached agreement with Russia's Yukos oil supplier following 10 months of negotiations.

The deal has been sent to the government for approval although the exact terms have yet to be made public. It is known that Yukos will pay around $75 million for a 26.85 percent stake in Mazeikiu Nafta and will invest another $75 million in reconstruction.

Yukos has also pledged to supply some 5 million metric tons of raw crude annually to the operation which has frequently been left without supplies from Russia.

The government would retain a 40.66 percent stake in the enterprise.

The deal would put Yukos on an equal footing with the company's "strategic investor" Williams International.

Williams took over administration of the enterprise in 1999 promising renovations that failed to materialize as supplies of crude dried up.

If approved the deal would be the largest Russian investment in Lithuania since the end of Soviet rule.

Mazeikiu Nafta's activities account for around 10 percent of Lithuania's gross domestic product.

The Lithuanian stock market responded favorably to the news and it was also a boost for government financial forecasters whose optimistic predictions for the fiscal year have been undermined by sagging exports.

Since coming under U.S. management in 1999 the oil refinery operation, which includes the trouble prone Butinge oil terminal off the Lithuanian coast, has posted ever mounting losses.

Williams has blamed supply interruptions for its inability to bring the plant up to the standards necessary for it to sell its products in the EU.

During the partial privatization of Mazeikiu Nafta the then conservative government selected Williams as a strategic investor without an open tender. Russia's LUKoil, Yukos' rival, was categorically told it couldn't own a majority in the stake.

The new deal would give Yukos a firm footing and leave it poised to buy more shares from private holders of small stakes, or from Williams should the Americans decide to wash their hands of the company.

The agreement gives the major shareholders preference over outside bidders in the event that the shares of other investors come up for sale, said Williams executive Randy Majors.

Day-to-day management of the refinery will remain in Williams' hands, he insisted.

"Williams is convinced that a mutually beneficial resolution has been reached, in keeping with the original principles of the agreement of cooperation signed by the companies in June of last year," Majors said in a joint Williams-Yukos press release.

"Now that the contracts between Yukos and Williams have been finalized and initialed, we hope the Lithuanian government will quickly review and approve them so we can close the transaction as soon as possible."

If the government finds no glaring faults in the deal, Williams says it could be approved as soon as June, which would help Williams receive credit on the international market.

Lithuanian officials were less optimistic the deal would be approved so quickly, telling reporters the government often takes considerable time to mull over such contracts.

Energy supplies are seen as a strategic issue in Lithuania because the country is in the main dependent on Russian oil and natural gas.

Williams was originally allotted its stake in the belief that it would be able to stop Russian suppliers from exerting political influence by withholding supplies.