Lithuania frets over Yukos

Perhaps the editorial in Lithuania's largest daily newspaper best summed up the national mood: "The Russians are coming!"

As the dust settles on a deal that will see the Russian oil company Yukos take over the Mazeikiu Nafta refinery, politicians, analysts and the public at large say they are weary of Moscow extending its influence into Lithuania.

Yukos announced last week that it had bought a 26.85 percent stake in Mazeikiu, which comprises a refinery, a pipeline and an import-export terminal, from the U.S.-based energy firm Williams International.

The $85 million deal gives Yukos, Russia's second largest oil firm, a controlling stake and management rights in Lithuania's most important company; Mazeikiu accounts for 10 percent of Lithuanian GDP.

"The Russians really are coming," wrote the Lietuvos Rytas daily. "Like it or not, they will have to be met."

Reaction to the deal was generally negative, and leaders were genuinely outraged at Williams' behind-the-scene negotiations with Yukos while maintaining a business-as-usual posture for months with the refinery's other major shareholder - the Lithuanian state.

"I can't assess (the deal) positively. It would have been much more tactful if the Lithuanian side had been warned," said Prime Minister Algirdas Brazauskas. "It's enough - we have played politics with Mazeikiu and we've already lost millions because of this foolish contract signed in 1999. When political motives dominate economic ones, then such are the results."

The deal was particularly hard to swallow because the country's leaders had expended so much energy on securing a deal with the Oklahoma-based Williams company three years ago.

At the time, Williams bought a one-third stake and the right to run the company as it saw fit.

Leaders said involving an American company in the country's oil sector would enhance security and boost chances to join NATO while freeing the economy of excessive dependence on the whims of Moscow.

LUKoil, Russia's largest oil company, had been interested in buying a stake in the concern since it was put up for privatization in 1997 but was rebuffed.

Ex-Economy Minister Vincas Babilius made headlines when he famously said, "I won't let Ivan near the pipes," an apparent reference to the head of LUKoil's Lithuanian subsidiary Ivan Paliecik.

But Williams' stewardship of the company was a rocky one, and millions of dollars' worth of upgrades to the concern's rusting Soviet infrastructure had to be delayed when LUKoil, Russia's largest oil company, refused to agree to long-term supply deals.

The mounting losses prompted Williams to push an initial deal earlier this year that brought Yukos in with 26.85 percent and an agreement to supply 35 million barrels of crude per year.

On Williams' watch, the refinery reported record losses that amounted to some $78 million last year and expected to be even higher in 2002. The company's withdrawal also allowed it to wiggle free before having to schedule large amounts of state-guaranteed modernization loans for repayment.

Now that Yukos takes over a 53.7 percent stake, it appears to many Lithuanians that everything the country struggled to prevent has happened.

"When bringing Williams to Lithuania, we were striving to ensure the independence of our energy sector and to ensure that East and West are balanced in it," said former Prime Minister Andrius Kubilius. "Now Lithuania's main interest has been violated."

President Valdas Adamkus has also called the situation "serious," and said there should be an investigation into whether Yukos, as an oil supplier, meets the interests of national security and economic independence, a reference to legislation that forbids energy resource suppliers from owning monopoly distribution networks in Lithuania.

Another former prime minister, Rolandas Paksas, who resigned in 1999 rather than sign the initial deal with Williams, said "one of the participants in the scam had left the scene with a profit, and the other, the Lithuanian taxpayers, with a bloody nose."

Much of the criticism in the media and on the Internet this week had a nationalist flavor to it, with fear that the deal gives Russia too much control over such a strategic enterprise.

But in the same editorial in which it warned of the Russians' arrival, Lietuvos Rytas concluded that the task for the country was now to ensure it gains from the Yukos deal.

"The most important thing is that deals made with Russian capital be financially beneficial," the paper said. "Politically useful deals have become untenable following Williams' flight from Mazeikiu."

"Russian investment should be welcomed as it is in all of Europe, but we must ask ourselves what is behind these investments," said Raimondas Lopata, director of the Vilnius-based Institute for International Relations. "The most important question is whether Russian companies that come to do business in Lithuania will be able to resist Moscow's political influence."

Meanwhile, Mazeikiu employees are wondering what Russian management might mean for their jobs.

The Internet portal www. delfi.lt reports one group of employees at the refinery is hoping for renewal and uninterrupted supplies of raw crude under the Russian company, while others are afraid of Russian disorder.

A third group believes Yukos is only interested in Lithuania's Butinge oil terminal on the Baltic coast near the Latvian border. Butinge was hitched to the Mazeikiu sale to Williams at the last minute. Butinge would give the most profitable Russian oil company a marine outlet in the West.

Modernization plans under Williams gave employees a sense of job security with the potential of eventually selling petroleum products to the European Union. Some fear that Yukos may abandon the modernization plans.

But Gintaras Miniotas, a senior operator at the refinery, said he expected things to improve since Yukos can guarantee the supply of crude.

But he said he would miss American management for its organization, saying he was glad Williams had forbidden employees from drinking alcohol on the job.

Williams earlier this year announced it would increase salaries for plant workers in 2003.