Lithuania, Yukos open talks

Lithuania has opened talks with Yukos for plans by the Russian oil company to take over a majority stake in the Mazeikiu Nafta oil refinery.

After meeting with top Yukos directors last week, Lithuanian Prime Minister Algirdas Brazauskas said the government wanted to scrap the 1999 agreement with the U.S. energy company Williams International setting out investors' management rights in the refinery, because after the sale Yukos will have a majority stake anyway.

"We believe that this agreement should be canceled altogether. We will seek that the company operates under the country's Company Law and will try to agree upon that with Yukos. I hope Yukos will see the ruinous effects of this agreement," Brazauskas told journalists.

Williams agreed to sell its 26.85 percent stake with management rights in the refinery to Yukos for $85 million (86.6 million euros), giving Russia's second-largest company a 53.7 percent holding.

The government is expected to send draft amendments to laws related to the agreement.

Cancellation of the agreement would free the loss-making refinery from paying tens of millions of litas in management fees annually, according to analysts, and might free the government as well from some financial obligations to the refinery.

Although Lithuania cannot block the sale to Yukos or unilaterally cancel the management agreement, Yukos has decided to pursue talks with the government about the refinery.

"I believe we will succeed in finding a reasonable solution, acceptable to all parties," Yukos Vice President Mikhail Brudno said after the meeting.

The Lithuanian government is expected not to exercise its option to buy half of Williams' shares in the refinery, which would deny Yukos a majority stake in Mazeikiu Nafta but not affect the transfer of management rights, despite pressure from Lithuanian President Valdas Admakus and the opposition to seek alternatives.

Economy Minister Petras Cesna advised the government Sept. 3 not to exercise the option to buy the shares.

Mazeikiu posted about 750 million litas (217.39 million euros) in losses between 199 and 2002.

"In an attempt to remedy the situation, the only option is the approval of Yukos' investments," Cesna said.

The possibility of a Russian company taking control of Mazeikiu Nafta, which accounts for more than 10 percent of Lithuania's gross domestic product, has raised national security concerns.

But Cesna said the government had means other than operational control of the refinery to ensure the flow of oil into Mazeikiu.

The sale of the stake with management rights to Williams in 1999 for $75 million was motivated by national security concerns.

Yukos bought an initial 26.85 percent stake in Mazeikiu Nafta in June for $75 million, in a deal which secured regular oil deliveries to the refinery and a $75 million loan for modernization works to meet EU environmental regulations.