The refinery Moscow built

  • 2002-09-05
  • Geoffrey Vasiliauskas
The secret deal between Lithuania's "strategic investor" in the country's only oil refinery, the U.S.-based energy concern Williams, and the Russian oil company Yukos has given the country the biggest bloody nose since Moscow cracked down on the independence movement in Vilnius in early 1991.

Back in 1999, when Williams and the Lithuanian government signed an agreement to give the U.S. company a stake in and operational control of Mazeikiu Nafta, there was a bullish mood in the energy supply sector. European suppliers were consolidating, and Williams took its tentative first step into the European market with Mazeikiu. Even if it didn't have a broader agenda in Europe, Mazeikiu seemed like a good thing from the business perspective: A working refinery on the periphery of European Union markets connected by supply lines and history to cheap Russian crude. To sweeten the deal, the Lithuanians threw in the new oil loading terminal on the Baltic Sea at Butinge.

Russia's most liquid assets are oil and gas. Moscow built the refinery at Mazeikiai during the Soviet occupation of the Baltic states and LUKoil executives have as much as called it theirs and Lithuania their market. Without Russian oil Mazeikiu Nafta can't operate.

Yukos, through the bad faith and unethical tactics of Williams, has gained control of Mazeikiu in name at least, pending government approval. But Mazeikiu itself will continue to mount losses for several years to come even under the best scenario. Yukos' interest in the Lithuanian refinery operation may be limited to having access to the Butinge terminal on the Baltic Sea, which means there's every chance Yukos will sell its share to another party in the future if the price is right. The only party which has historically expressed any interest in Mazeikiu is Russia's LUKoil, perceived in Lithuania rightly or wrongly as the handmaiden of the Kremlin's policy makers.

Lithuania only has two choices following the secret deal between Yukos and Williams: to approve the deal and get used to the idea of Russian management of the Lithuanian monopoly petroleum operation, or to oppose it.

A third option would be to buy out Yukos' stake, but word is Lithuania doesn't have the cash on hand.

Opposition could take several forms. One possibility is to put the original contract with Williams into question. Lithuania's Constitutional Court earlier ruled against the terms of agreement although there was almost no political will for pressing the issue when Williams was still Lithuania's "strategic investor."

Pushing the question now would leave Lithuania open to charges it doesn't honor its contracts and discriminates by country of origin. Another possibility is to invoke strategic enterprise legislation written exactly for that purpose, to discriminate against Russian domination in industries with a vital national interest.

MP Vytenis Andriukaitis, a longtime critic of the deal with Williams, called for an extraordinary session of Parliament to address the secret deal. MPs began drifting back into Vilnius for the fall session of Parliament which officially opened on September 2, and independent MP Julius Veselka spoke forcefully on the need to address the issue that day, but to an audience of perhaps only a dozen MPs.

The wind seems to be blowing in Yukos' favor in Lithuania, with widespread recognition among politicians that the state is not the best operator at Mazeikiu Nafta. The government seems likely to approve Williams' sale to Yukos, and Lord Owen, chairman of Yukos International, went on a charm offensive in Vilnius in the final days of August to convince national power brokers that the company intends to turn Mazeikiu's prospects around.