State gives investor huge break

The government on July 2 approved revisions to agreements with investors in Mazeikiu Nafta (Mazeikiai Oil) in a move that will allow the Lithuanian oil group to save around 200 million litas (58 million euros) per year.
The Cabinet gave the green light for revising the investment and shareholder agreements and for canceling the management agreement.
The government and Williams International had signed the agreements back in 1999, when the U.S. investor bought 33 percent of the oil refinery's shares and operational control of the oil complex.
The revisions took effect July 8, the day of the signing.
The government and the refinery's new strategic investor, Yukos, agreed to revise the agreements after the Russian oil giant took over operational control of Mazeikiu Nafta from Williams last September.
"The state wins because [the revisions] make it impossible for Yukos to unilaterally halt interest payments on government loans [to Mazeikiu Nafta], the way Williams International did," Economy Minister Petras Cesna told reporters.
He added that the U.S. company failed to pay about 20 million litas in interest on the loans.
"Also, the revisions to the agreements and the reduced interest rates will help Mazeikiu Nafta to trim its year-end losses - or even break even," the minister said.
The government's loans to the refining and transportation group carry an interest rate of 10 percent. The government has agreed to lower the rate to 8 percent this year and to cut it further to 7 percent next March.
The reduced interest rate will be 250 basis points higher than the rate on the government's Eurobond placed earlier this year (4.5 percent).
The government has extended a total of $288 million in loans to the Mazeikiu oil group, with a repayment period starting in 2009.
Under the management agreement, the operator of Mazeikiu Nafta receives a management fee, which is comprised of the operator's actual expenses and a premium amounting to 15 percent of the expenses. The management fee ranged between 40 million and 50 million litas per year.
The 15 percent premium will be abandoned after the agreement is scrapped.
Mazeikiu Nafta announced an unaudited net profit of 115.8 million litas for the first quarter of 2003, based on the U.S. GAAP after posting an audited loss of 114.3 million litas for the full year 2002.
Yukos now owns 53.7 percent of the Mazeikiu group, while the Lithuanian government has a 40.66 percent stake.