Lithuania opens door for Yukos management

  • 2002-09-12
VILNIUS

Lithuania's government dec-lined to exercise its right to buy back shares in the Mazeikiu Nafta oil refinery, clearing the way for the Russian firm Yukos to assume a majority stake in the company.

The government on Sept. 6 proposed Yukos as the refinery's strategic investor.

"The decision was taken after taking into account all economic and legal arguments and after a thorough evaluation of possible consequences of such a deal," the government said in a statement.

In an statement at the end of August, the U.S. energy company Williams International announced it would sell its 26.85 percent stake with management rights in the refinery to Yukos for $85 million.

The government, which still owns 40.66 percent in the refinery, had an option to buy half of the shares sold by Williams. Some local politicians had urged the Cabinet to use this right.

The government's purchase of the shares would have prevented Yukos from gaining a majority stake in the refinery, which accounts for more than 10 percent of the country's GDP, but it would not have blocked the transfer of management rights.

The government said if it purchased the shares it would not increase its influence in the company and would have to contribute more money to its modernization.

"The financial risks for the country would increase as some additional $100 million would be required for modernization," the government's statement said.

Lithuania sold the stake with management rights to Williams in 1999 for $75 million, partly as a way to boost national security by allowing a U.S. company to partially own a strategic asset.

In the last two years, Mazeikiu Nafta has suffered more than $100 million in losses because it has not been able to buy sufficient supplies of crude oil from Russia.

To boost production at Mazeikiu, Yukos will reportedly boost crude supplies to the refinery, according to the industry publication Petroleum Argus.

Yukos signed a crude supply deal with the Lithuanian government in June for 400,000 tons per month. Petroleum Argus reported this week that Yukos will up its supply to 600,000 tons in the fourth quarter this year.

In addition to more oil, Yukos is likely to bring more ancillary businesses with it to Lithuania.

Market observers are predicting an upsurge in oil transport companies, likely Russian or foreign-owned, that will follow Yukos.

"Yukos will develop an infrastructure in Lithuania and, most probably, will hire people who are engaged in the transportation business, as Yukos has limited experience in this area," Kaha Kiknavelidze, an oil and gas analyst at the Russian banking company Troika Dialog, told the Baltic News Service.