Yukos, Lithuania and the undoing of the Americans

The U.S.-based energy group Williams announced last week that it was selling its share in Lithuania's Mazeikiu Nafta to Russia's No. 2 oil company Yukos. The sale has angered some and relieved others.
Citing economic pressures among its other business units, the U.S.-based energy group Williams offered its shares in the Mazeikiu Nafta refinery to Russia's Yukos last week. This marks the end of a sorry saga in which good intentions were sunk by bad press, inept diplomacy and a vengeful adversary.

Williams, with its millions of dollars, came to town to buy a refinery from people who had never sold a refinery and who had little experience with big business and big money. Naturally, Williams and its negotiators were accused of taking advantage of the unskilled Lithuanians.

It's not unfair to say the Russians beat the Williams people at every juncture in this failed effort to get a Western management company for the Baltic states' only refinery. They could not overcome the "disinformation" campaign that positioned them as enemies of the state.

One of the craziest distortions was describing the refinery as the "crown jewel" in Lithuania's national assets being plundered by evil forces from "the West." However, this played well with the unemployed, those whose paychecks were months in arrears, whose pensions had reduced them to abject poverty, and all who felt cheated by the unmet expectations of the market economy. That's probably more than 90 percent of the population.

The facts were that the rusting relic was not contributing to the tax base and was a drain on state revenues. Worse, major police work and wholesale firings would be required to stop an estimated $35 million annually from "walking out the gate." That, coupled with gross overstaffing that is usual with state-owned enterprises, made profitability a distant goal.

In fact, the financial and political realities were so negative that no other oil company showed interest in this "opportunity." Still, no one could have anticipated the unrelenting negative press and political antics of the anti-Williams forces.

To be sure, the Williams people suffered from self-inflicted wounds – repeatedly. Many Americans, Lithuanians, and interested others tried to be helpful but ended up saying – usually in despair: "They just don't listen!"

Of course they didn't – they were oil men. Along with some military and police agencies, oil companies tend to produce America's most rigid and wooden-headed cowboy corporate cultures (including the fancy boots).

Since so few people here understand finances beyond pocket money, it's no wonder that Williams' demand that outstanding debts be cleared before they assumed management of the refinery was misunderstood. That got played as Lithuanians being forced to borrow money to pay Williams to take over Mazeikiu Nafta. That led to the "heroic" resignation of a prime minister in protest over the bad deal that was being forced on Lithuania.

But even the best management cannot make profits operating at less than 50 percent capacity, which Williams had to do.

Why? Russians controlled the flow of crude oil and wanted partnership in exchange for guaranteed deliveries.

Checkmate.

More negotiations gave Yukos and Williams both 26.85 percent of the refinery's shares, with 40.66 being held by the Lithuanian government. But now, with the sell-out, Yukos gets majority status and enters the Baltics as an integrated operation from pipeline to fuel pump.

So, in a geopolitical sense, the Russians achieved what many believe Williams was recruited into the game to prevent.

Among the hopes for Lithuania was a refinery management that would operate profitably, transparently, and pay lots of taxes. Will YUKOS be that transparent, tax-paying money machine? That remains to be seen.