After months of rumors, the U.S. energy company Williams International agreed to sell its 26.85 percent stake in Lithuania's Mazeikiu Nafta oil refinery to Russian oil giant Yukos, Lithuanian and Yukos officials said Aug. 20.
The three sides signed a letter of intent in New York Aug. 19 to complete the $85 million deal that would give Yukos a controlling stake and management rights in Lithuania's largest company.
The Russian company will now control 53.7 percent of Mazeikiu after acquiring its first 26.85 percent stake and agreeing to a 10-year crude supply deal in June.
The deal, expected to be concluded in September, includes a provision that allowsthe Lithuanian government to buy half the stock sold by Williams, but Economy Minister Petras Cesna said the government would not likely exercise that right.
"What is the use of these shares if Yukos will retain management rights," he said.
Williams official Randy Major, chairman of the Mazeikiu Nafta board, said the U.S. oil company's current financial woes and debts incurred in an ailing energy market at home convinced it to part with its Mazeikiu shares.
The move provoked an angry outburst from President Valdas Adamkus, a former U.S. citizen and a strong backer of bringing Williams into the refinery in 1999.
"Such a step by a U.S. company behind the back of the Lithuanian government puts it in a complicated situation," Adamkus was quoted by Agence France-Presse as saying, referring to an earlier pledge by Williams not to sell its stake.
Added Adamkus spokeswoman Violeta Gaizauskaite, "the entire long and confusing story of the company's investment in Mazeikiu Nafta has caused extensive damage to the image of U.S companies in Lithuania."
Andrius Kubilius, leader of the opposition Conservatives who were in power when the initial Williams sale was agreed, also criticized Williams for leaving.
"I cannot imagine that in Poland or the Czech Republic, a major oil company would be both owner and supplier of an oil refinery. It's a question of economic independence."
U.S. Ambassador to Lithuania John Tefft expressed regret during a meeting with Adamkus over Williams' decision to sell but reiterated that it was a financial decision.
Lithuania sold the stake with management rights to Williams in 1999 for $75 million in a deal that was heartily endorsed by Adamkus and the then-ruling Conservatives, partly as a way to boost the country's security and push it further into the pro-United States, pro-West camp.
The fear of giving too much control to a Russian company in such a crucial sector also pushed Parliament into backing the deal.
But the deal sparked controversy when then-Prime Minister Rolandas Paksas, in office barely five months, resigned, saying the deal was detrimental to Lithuanian interests. He pointed particularly to a provision that required the state to pay out up to $400 million to Williams to cover Mazeikiu's debts.
Since the deal, Mazeikiu has remained heavily in the red and mounting losses have hindered Williams' management of the concern.
In the second quarter this year, Williams' announced operating losses of $349 million.
Though some continued to express concerns about the Yukos takeover - Margarita Starkeviciute, an economics professor at Vilnius University, said it dangerously increased Russian economic influence in Lithuania - many were happier to see the end of Williams and what they called its mismanagement of the concern.
Prime Minister Algirdas Brazauskas called Williams' management style "unprofessional" while Finance Minister Dalia Grybauskaite said the company's departure was not too bad "taking into account the quality of management."
Yukos Vice President Mikhail Brudno said the company would offer better management of Lithuania's most important company - output accounts for 10 percent of GDP in the nation of 3.5 million people - than Williams did.
"I'm sure Yukos is capable of managing Mazeikiu more effectively," he told journalists Aug. 20.
"If there is a buyer and the possibility that the company starts making a profit, we should only be happy," said Parliament Speaker Arturas Paulauskas, a possible rival to Adamkus when he faces re-election this December:
Well-known local business journalist Arturas Racas said on a state television news program that the deal would not affect Lithuanian security either since the country is so close to joining NATO and the European Union.
Lithuania, along with Baltic neighbors Latvia and Estonia, is expecting an invitation to the military alliance in November. All three hope to join the European Union by 2004.
He added that Yukos, one of Russia's fastest growing oil firms, might help Mazeikui.
"Yukos has a good and internationally acknowledged management. It might be beneficial for Lithuania's economy if the company's management and oil suppliers are in the same hands and Mazeikiu Nafta works with a profit," he said.
Russia's second largest oil company, Yukos promised in its deal earlier this year to supply Mazeikiu Nafta, which includes an oil refinery, a pipeline and an oil import-export terminal at Butinge, with 4.8 million tons, or 35 million barrels, of crude per year.
Yukos also agreed to loan the refinery $75 million for modernization necessary to meet European Union environmental standards.